Business Interruption Insurance.
Business Interruption Insurance (also known as Business Income Insurance) is a commercial coverage that reimburses a business for lost income and extra expenses when it cannot operate normally due to a covered peril, such as:
- Fire
- Natural disasters (storms, hurricanes)
- Vandalism
- Equipment damage
- Civil authority shutdowns (e.g., road closures by government)
It does not cover physical damage itself — that’s the job of your commercial property insurance — but rather the financial impact of the interruption.
Does It Cover.
Business interruption insurance typically covers:
Lost Revenue
Replaces income your business would have earned had the event not occurred (based on past financial records).
Operating Expenses.
Helps pay for ongoing costs like:
- Rent or lease payments
- Utilities
- Loan payments
- Employee wages (even during downtime)
Temporary Relocation.
Covers the cost of moving and operating from a temporary location while repairs are underway.
Extra Expenses.
Pays for unexpected costs required to keep the business running (e.g., renting equipment, rush shipping of supplies).
Civil Authority Coverage.
Covers income loss if a government entity prohibits access to your business (e.g., during a riot, curfew, or emergency response).
Contingent Business Interruption.
Optional add-on that covers income loss caused by supply chain disruptions (e.g., a vendor’s warehouse burns down).
What’s Not Covered.
| Not Covered | Explanation |
|---|---|
| ❌ Property damage | That’s covered under commercial property insurance |
| ❌ Pandemics | Most policies exclude COVID-19 and future viruses unless explicitly added |
| ❌ Utilities failures | Unless caused by a covered peril |
| ❌ Earthquakes/Floods | Typically excluded unless you have an endorsement |
| ❌ Undocumented income | Must be proven with financial records |
Who Needs It.
Ideal for:
- Retailers with physical stores
- Restaurants and cafés
- Manufacturers and warehouses
- Service providers (salons, gyms)
- Offices in high-risk areas (fire, hurricane zones)
If your business relies on a physical location or equipment to generate income, you likely need this coverage.
Key Terms to Know
| Term | Meaning |
|---|---|
| Restoration Period | Time it reasonably takes to repair your property (usually 30 days to 12 months) |
| Waiting Period | Delay (often 72 hours) before coverage begins after the loss |
| Limit of Insurance | Maximum amount the insurer will pay for business interruption losses |
| Extra Expense Coverage | Optional; helps businesses reduce downtime by covering mitigation costs |
Real-Life Example
Case Study: Bakery Fire in Texas
Business: Small bakery in Dallas
Event: Fire damages oven and storefront
Damage Cost: $80,000
Income Loss: $50,000 over 3 months
Extra Expense: $10,000 to rent temporary kitchen
With business interruption insurance, the bakery gets:
- Reimbursed for the $50,000 income loss
- Paid $10,000 to cover the temporary kitchen
- Covers wages for the baker and staff
Without this policy, the business might not survive.
How Is the Premium Calculated.
Your cost depends on:
| Factor | Impact |
|---|---|
| Business type | High-risk industries (e.g., restaurants) pay more |
| Revenue | Higher income = higher potential losses = higher premiums |
| Location | Storm- or fire-prone areas increase rates |
| Coverage limit | Higher limits mean more premium |
| Endorsements | Extra riders like CBI add to cost |
👉 Average Cost (USA):
- Small Business: $500–$3,000/year
- Large Enterprise: $10,000+/year
Tips for Getting the Right Coverage
- Bundle it with your commercial property policy (usually part of a BOP – Business Owner’s Policy).
- Choose the right limit: Use income statements and business forecasts to estimate.
- Ask about waiting periods and make sure they’re short enough for your business.
- Document everything: Keep financial records, receipts, payroll records, etc.
- Consider endorsements: Like Contingent BI or Utility Interruption if you depend heavily on suppliers or utilities.
About COVID-19 and Future Pandemics.
Most business interruption policies excluded pandemic coverage unless you purchased specific endorsements (rare and expensive). Post-COVID, some insurers now offer limited virus-related riders, but they:
- Have strict criteria
- Often only cover certain costs
- May not cover full revenue losses.