Business Interruption Insurance replaces lost income and pays ongoing expenses if your business is forced to shut down temporarily. It’s often included in a BOP or Commercial Property Insurance policy.
Business Interruption Insurance
What Is Business Interruption Insurance?
Business Interruption Insurance (also called Business Income Insurance) helps replace lost income and cover operating expenses when a business is forced to close temporarily due to a covered event, such as fire, theft, or natural disaster. It ensures financial continuity by helping you pay rent, payroll, and other fixed costs during the recovery period. This coverage is not sold on its own but is typically bundled with a Commercial Property Insurance policy or a Business Owners Policy (BOP).
Who Needs Business Interruption Insurance?
Businesses need Business Interruption Insurance to cover lost income and operating expenses if they’re forced to temporarily close due to a covered event, like a fire or natural disaster. It helps pay for rent, payroll, and other ongoing costs while operations are halted. This coverage ensures a business can stay financially stable and recover more quickly after an unexpected disruption. Any business that relies on physical operations, staff, or in-person services should strongly consider Business Interruption Insurance.
Common industries that often require Business Interruption Insurance include:
- Brick-and-Mortar Retail
- Hospitality Businesses
- Manufacturers and Warehouses
- Medical, Dental, and Veterinary practices
- Restaurants, Cafes, and Food Service Operations
- Any business with high fixed monthly expenses
What Does Business Interruption Insurance Cover?
Business Interruption Insurance typically covers:
- Lost Income: Replaces the revenue your business would have earned during the shutdown period.
- Fixed Operating Expenses: Helps pay rent, payroll, utilities, and loan payments while the business is closed.
- Temporary Relocation: Covers the cost of moving to and operating from a temporary location.
- Extra Expenses: Helps with additional costs needed to get the business running again faster (e.g., rush shipping on new inventory).
- Civil Authority Orders: Reimburses lost income when government-mandated closures (due to a covered event) prevent access to your premises
What Doesn't Business Interruption Insurance Cover?
While Business Interruption Insurance offers broad protection, it doesn’t cover:
- Losses from pandemics, viruses, or communicable diseases (usually excluded unless explicitly endorsed)
- Undocumented income or profits
- Utilities not directly tied to the premises closure
- Property damage (covered under Commercial Property)
- Partial slowdowns that don’t fully suspend operations
- Interruptions from uninsured causes like earthquakes or floods, unless separately covered
How Much Does Business Interruption Insurance Cost?
Business Interruption coverage is typically added as an endorsement to a Property or BOP Policy. The cost of varies based on factors like business size, revenue, industry, location, and overall risk exposure.
Key Cost Factors:
- Gross Revenue and Profit Margins
- Type of business and Industry Risk
- Time needed to resume operations (indemnity period)
- Geographic location and natural disaster exposure
- Value and vulnerability of covered premises
- Contingent business interruption exposure (supplier/customer dependencies)
Typical Cost Range:
- Small Businesses: $250–$1,000 annually as part of a bundled policy
- Medium Businesses: $1,000–$10,000+, depending on revenue and business type
- Large Businesses: $5,000–$20,000+, depending on revenue and business type
- Custom Limits: Insurers often calculate limits based on 12–24 months of gross revenue
Risk Management Tips
To minimize potential claims and reduce the financial impact of the future interruptions:
- Maintain a strong emergency response and disaster recovery plan
- Keep financial records up to date to support potential claims
- Consider pairing with utility service interruption coverage
- Review business continuity plans with your insurance advisor annually
- Evaluate risk exposure by location (fire, flood, storm zones)
Talk to An Expert
Our dedicated experts are ready to provide tailored insurance solutions to clients across a wide range of industries and specialized services.
Schedule a consultation to see how Alliance Risk can reduce your insurance risk.
– We look forward to partnering with you.