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Business interruption insurance
Business interruption insurance
If a business is forced to temporarily close due to a catastrophic event such as a fire, business interruption insurance can pay for lost revenue, day-to-day expenses, and rent or relocation costs.
What is business interruption insurance, and why is it important for small businesses?
Business interruption insurance covers financial losses when your small business is forced to close due to a fire or other covered property claim. It can help cover lost revenue, day-to-day operating expenses, and relocation.
Fires, natural disasters, burst pipes, and similar incidents can bankrupt your business with costly renovations at a time when you're taking in zero profits. Business interruption insurance keeps your business afloat until you can reopen.
This coverage is particularly important for restaurants, retailers, and others who depend on a brick-and-mortar location. It's also crucial for manufacturers and others with specialized equipment, such as an EV charging business. A temporary closure can halt your operations and your income, potentially making it impossible to recover.
You may also see business interruption insurance referred to as business income insurance. You can buy it as an add-on to your commercial property insurance or business owner’s policy (BOP), but not as a standalone policy.
Business interruption insurance is essential if your business:
- Operates out of a fixed location, such as a storefront or an office
- Depends on specific equipment or machinery
- Stores essential inventory or supplies
- Has high daily operating costs
- Owes loans, leases, or mortgage payments
What does business interruption insurance cover?
Business interruption insurance compensates your business for its lost profits, normal operating expenses, and other costs if a fire or other commercial property insurance claim forces you to close your doors temporarily.
Specifically, it can help pay for:
Lost income
If your business can’t serve customers, sell products, or work with clients because of physical property damage, business interruption insurance will help compensate your business for the loss of income. Your financial records determine how much money you're eligible to receive.
Rent or lease payments
When a covered event forces your business to close temporarily, you might still have to pay rent or make payments on equipment that you don’t own. Business interruption insurance covers the cost of rental, lease, and mortgage payments while your business isn’t making money.
Relocation costs
If your business is forced to relocate due to a covered peril, business interruption insurance coverage can help pay for your moving costs. It can also pay for rent in the temporary location.
Employee wages
To retain employees while your business is closed, you’ll have to keep paying them. Business interruption insurance covers the cost of payroll while your business isn’t earning revenue. Most business interruption policies cover the cost of up to one year of pay for each employee.
Taxes
Even if finances are tight during a temporary shutdown, you’ll still have to meet your quarterly or annual tax obligations. Business interruption insurance ensures that you have the funds to pay the taxes you owe, even if your business is no longer bringing in revenue.
Loan payments
If your business has loans, you’ll still need to meet your loan obligations during a temporary shutdown. Business interruption insurance can help you with payments for a community development loan for a nonprofit, a Small Business Administration (SBA) loan, and other loans while your business recovers.
How much does business interruption insurance cost?
The cost of business interruption insurance can vary widely depending on the likelihood of a closure and its financial impact.
Several factors can affect your premium, including:
- Business revenue
- Location
- Coverage limits and deductible
- Property value
- Industry risks
- History of insurance claims
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Who needs business interruption coverage?
If damage to your building, equipment, or perishable inventory could force your business to close, then business interruption insurance is essential. Any business that operates out of a physical location, depends on tools or machinery to do its work, or sells or manufactures products should carry this coverage.
Here are some examples of how business interruption insurance works across several industries:
Food and beverage businesses
A grease fire at a fast food restaurant destroys the kitchen and part of the seating area. A contractor tells the owner that renovation could take up to a year.
Commercial property insurance covers the repairs, but the owner can’t make money while the business is under construction. Business income coverage helps recoup the lost revenue and pay the employees' wages while the work is done.
Retailers
A roof leaks during a rainstorm at an electronics store, causing a mold problem that makes it impossible to serve customers. While the business is closed for renovations, it still needs to make rental payments on the store.
Business interruption insurance covers these costs and provides reimbursement for lost income until the shop reopens.
Construction businesses and contractors
A fire destroys a contractor's trailer at the beginning of the year, forcing them to withdraw from bids and miss their revenue goals. However, they're still responsible for paying their annual federal and state income taxes on their previously earned revenue.
A business interruption insurance policy covers these costs so the contractor can use their money to get the business up and running again.
Manufacturers
A pipe bursts at a beverage manufacturing plant, flooding the office and factory floor and destroying walls, carpeting, furnishings, and equipment. The factory is forced to close for three months for renovation.
Business interruption insurance helps the factory meet its payroll obligations and covers other expenses during the period of restoration.
Professional services
An intruder breaks into a law firm, vandalizing the office and breaking several windows. The law firm is forced to relocate to a new office space until the windows and locks are replaced.
Business interruption insurance pays for moving costs and rent at the new location.
Auto services
A newly opened auto repair shop is burglarized and the thief makes off with thousands of dollars in tools, parts, and equipment. The mechanic can't work on any vehicles until they get replaced, which sets the business back substantially.
Business interruption insurance helps pay for lost revenue until the items are restored and business can return to normal.
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What does business interruption insurance not cover?
Business interruption insurance covers relevant financial losses when a property claim forces your business to close, but it won't cover every situation. For instance, your policy does not provide coverage for:
Property damage
Business interruption insurance covers the financial—not material—costs of a shutdown. The cost of repairing or replacing damaged business property is covered by commercial property insurance, which is included in a business owner's policy.
Business interruptions that aren't related to a property claim likely won't be covered by business interruption insurance. However, it's possible to buy coverage for other types of events, or add endorsements for specific risks.
For example, cyber insurance covers costs when you are forced to suspend business operations due to a cyberattack or data breach.
Short or partial interruptions
To qualify for a claim on your business interruption insurance, the forced closure must last for a certain length of time, usually 72 hours. That means you won't be able to collect on a short-term event like a power outage.
Also, your business must close completely to qualify for a claim—not just scale back operations.
General liability insurance
General liability insurance covers common business risks like customer injury, customer property damage, and advertising injury. It protects your small business from the high costs of lawsuits and helps you qualify for leases and contracts.
Business owner’s policy
A business owner’s policy (BOP) bundles general liability insurance with commercial property insurance. It typically costs less than if the policies were bought separately.
Workers’ compensation insurance
Workers’ compensation insurance covers medical costs and lost wages for work-related injuries and illnesses. This policy is required in almost every state for businesses that have employees.
Cyber insurance
Cyber liability insurance, also called cybersecurity insurance, protects small businesses from the high costs of a data breach or malicious software attack. It covers expenses such as customer notification, credit monitoring, legal fees, and fines.
Commercial auto insurance
Commercial auto insurance covers legal bills, medical expenses, and property damage if a business vehicle is involved in an accident.
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Frequently asked questions (FAQs) about business interruption insurance
Review answers to common questions about business interruption insurance.
Business interruption coverage may include a civil authority clause that covers government-ordered business closures. Invoking this clause involves the following criteria:
- The denial of access involves a physical damage incident to a nearby property.
- The damage must be from a risk that’s covered by your own business interruption policy.
- There will be a waiting period of 24 to 72 hours before your coverage starts.
- The amount of coverage is limited, usually to 15 to 30 days.
Who is eligible for business interruption insurance?
To qualify for business interruption insurance, most insurance providers require that your business have a commercial location. If you have a home-based business, you might not be able to add business interruption insurance to your business owner’s policy.
Other factors can affect your business’s eligibility for business interruption insurance, including:
- Business classification or industry
- Previous business interruption claims
- Your business location
How does business interruption insurance work?
Business interruption insurance covers the cost of a temporary shutdown when:
- Your business has commercial property insurance through a standalone policy, or has it bundled in a business owner's policy or commercial package policy (CPP). Check that your policy includes a business interruption rider.
- The cause of the interruption is a covered loss under your property insurance policy. Property insurance, sometimes referred to as business hazard insurance, usually covers fires, storms, vandalism, and other direct physical losses.
- Your business shuts down completely. If you’re still operating and bringing in revenue in any capacity (even online or out of your home), you won’t be able to collect business interruption benefits.
Your business must be closed for a certain amount of time before you can begin collecting benefits. This can take up to 72 hours, but it varies. Cyber insurance waiting periods are shorter, typically between 6 and 12 hours.
Each insurer may include different business interruption coverages and exclusions to distinguish itself from the competition.
How do you calculate business interruption insurance costs?
Business interruption insurance is purchased as an add-on to your commercial property insurance or business owner's policy. Buying this coverage may increase your premium, though often it's already included.
Here's a breakdown of the key factors that can affect your premium:
- Annual revenue. This policy reimburses your business for lost income during a shutdown, so your projected net income is the single most important factor in calculating your premium.
- Number of employees. Businesses with a larger workforce can expect a higher premium, as this policy will compensate your employees for wages while you're temporarily closed.
- Operating expenses. If you're paying rent on a commercial space or leasing expensive equipment, you may see a higher premium.
- Type of business. Restaurants, retailers, and other companies that rely on customers coming into your place of business may see higher rates for this coverage, as a shutdown will have a bigger impact.
Other factors such as your claims history, your industry, and your business location can also influence your rates. Some small business owners choose to pay more for endorsements on their policy as well.
Can business interruption insurance be purchased as a standalone policy?
No, you can't buy standalone business interruption insurance.
This insurance activates alongside a covered property insurance claim, such as a storm that damages your office. That's why you need to buy it as part of commercial property insurance or a business owner's policy.
How long does business interruption insurance last?
Most policies will cover interruptions that last up to 12 months, but the length of time that your coverage applies may vary by insurer. Your business must have been closed for the amount of time specified by your policy (usually around three days) before your coverage period can begin.
You can also buy an endorsement for an extended period of indemnity. This option continues to provide coverage for lost income after your business has reopened, while your revenue is still lagging. It'll last until your income returns to its previous levels, or the maximum time limit is reached on the endorsement.
Can I add endorsements to business interruption insurance?
Yes, you can add endorsements to your business interruption policy, such as:
Extra expense coverage funds "extras" that help keep your business open after a disruptive event. That includes nonordinary operating costs like leasing equipment, paying employees overtime, or hiring temporary workers.
Contingent business interruption insurance provides financial assistance when the loss of a primary supplier, partner, or customer affects your ability to do business. It pays for ongoing expenses while you search for a replacement. This rider makes sense if your business relies on:
- A single supplier or manufacturer to provide certain materials
- A few major customers to provide most of your revenue
- Other nearby businesses to attract customers
With Insureon, you can chat with a licensed insurance agent to make sure you have the right coverage. They can help you understand policy language, or recommend other business insurance policies you might need.
Does business interruption insurance cover communicable diseases?
In most cases, this policy will not cover losses related to diseases, such as the coronavirus pandemic. Business interruption insurance activates alongside a commercial property insurance claim, such as a fire, burst pipe, or other incident that causes physical damage to the building covered by your policy.
Standard commercial insurance policies typically have exclusions for losses related to communicable diseases. For that coverage, you would have to purchase a communicable disease rider, and likely also prove the disease was present on your business premises. If you think your business might qualify for a claim, contact your insurance company.
Updated: December 19, 2025