What is Business Interruption Insurance? Everything You Need to Know

When the unexpected happens, the financial fallout from temporarily shutting down your business can be just as devastating as the event itself. Whether you run a local coffee shop or manage a regional manufacturing facility, business interruption insurance can be the safety net that keeps you open for business.

What Is Business Interruption Insurance?

Business interruption insurance, also referred to as business income insurance and business continuity insurance, covers a loss of business income when your business is forced to temporarily close due to a covered event. While commercial property insurance helps cover the physical damage, business interruption insurance addresses the financial impact of not being able to operate.

This coverage is typically added to a commercial property policy or included in a business owner’s policy (BOP). It is not available as a standalone policy

What Does Business Interruption Insurance Cover?

Business interruption insurance supports your ability to recover and maintain stability if a covered loss forces your business to shut down. Most policies include coverage for the following:

• Lost income: Reimburses lost profits based on your business’s financial records and historical earnings to help maintain revenue while operations are paused.
• Employee wages: Covers payroll expenses so you can continue paying employees and retain talent during downtime, avoiding costly turnover or rehiring delays. 
• Loan payments: Helps you stay current on business loans, SBA financing, and equipment leases during shutdowns.
• Rent or commercial mortgages: Covers lease or mortgage payments even if your space is unusable due to a covered loss.
• Relocation Costs: Pays for moving and setting up operations at a temporary location when your primary location is unusable.*
• Civil authority: Covers losses when access to your business is restricted by government order(s) due to nearby physical damage caused by a covered peril. This typically applies when your space isn’t damaged but becomes inaccessible, such as mandated evacuations or street closures after a tornado.

What Does Business Interruption Insurance Not Cover? 

While business interruption insurance provides essential protection, it comes with limitations. Coverage typically depends on what’s included in your commercial property or business owners policy. If an event isn’t covered there, it likely won’t trigger your business income coverage. Common exclusions include: 

• Power outages
• Pandemics and communicable diseases
• Flood damage, unless you have separate flood insurance 
• Earthquakes, unless you have separate earthquake coverage

How Does Business Interruption Insurance Work?

Business interruption insurance is designed to keep businesses afloat until normal operations can resume. It kicks in when your business experiences a direct physical loss due to a covered event, such as a fire, hurricane, severe storm, or vandalism. To file a business interruption claim, the loss must meet the criteria specified in your policy.

Most policies include a waiting period of 24 to 72 hours, depending on endorsements, before coverage begins. Coverage continues through the policy’s defined restoration period. 

How Long Does Business Interruption Insurance Last?

Coverage lasts for the period of restoration, which is the time needed to repair or replace damaged property. This period begins after the policy’s waiting period and continues until your business can return to normal operations. Most policies provide coverage for up to 12 months, though some may extend longer depending on your policy’s terms, limits, and endorsements.

How Much Does Business Interruption Insurance Cost?

The cost of business interruption insurance can vary significantly. Since this coverage is usually bundled with commercial property or a business owner’s policy, premiums reflect both your business profile and risk exposure. Common factors that affect your premium include:

• Business size and annual revenue
• Payroll and number of employees
• Industry and operational risk level
• Location and exposure to local hazards
• Policy limits and deductibles
• History of insurance claims

Is Business Interruption Insurance Required?

Business interruption insurance isn’t legally mandated, but it may be required by lenders or as part of a lease agreement. More importantly, it’s a smart investment for businesses that:

• Operate from a physical location
• Rely on specific equipment or machinery
• Hold inventory or perishable goods
• Have significant daily operating expenses
• Carry business loans, leases, or mortgages

How Much Business Interruption Insurance Do I Need?

Determining the right coverage starts with understanding your financial baseline. Consider the following when estimating your coverage needs:

• Average monthly revenue: Use historical data to estimate how much income would need to be replaced during a shutdown.
• Fixed operating expenses: Include payroll, rent, utilities, loan payments, and other costs that continue even if operations stop.
• Industry-specific recovery timelines: Align your coverage with your expected downtime and operational complexity.

Get a Business Interruption Insurance Quote

Business interruption insurance plays a key role in protecting your financial stability, long-term viability, and ability to support your employees. When a covered loss brings your operations to a halt, the financial impact can be swift and widespread. Business interruption insurance helps bridge the gap — covering ongoing expenses like payroll, rent, and loan payments.

To make the most of your policy, make sure you fully understand the terms of your policy, including any exclusions, limits, deductibles, and waiting periods. A well-matched policy can make all the difference. 

Ready to safeguard your business? Connect with an agent to review your current coverage or get a tailored quote.