Business Interruption Insurance
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What does business interruption insurance cover?

Business interruption insurance compensates your business for lost revenue and other expenses if a fire or other property insurance claim forces you to close your doors temporarily.

What types of events does business interruption insurance cover?

Business interruption insurance covers events that are insured by your commercial property insurance or business owner's policy coverage, including fires and some weather-related damages.

Business interruption insurance typically doesn’t cover short interruptions, such as power outages, or partial interruptions, such as scaled-back operations. It also doesn't protect against losses unrelated to property insurance, such as lost profits from the coronavirus.

Business interruption insurance can cover:

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Lost revenue
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Rent or lease payments
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Relocation costs
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Employee wages
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Taxes
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Loan payments

Lost revenue

If your business can’t serve customers, make sales, or work with clients because of property damage, business interruption insurance will help compensate your business for lost revenue. This policy ensures that a temporary shutdown doesn’t become a permanent closure if you don’t have the means to keep your business open.

Example: Heavy rain causes serious water damage at a restaurant. A contractor tells the owner that renovation could take up to a year. While commercial property insurance covers the repairs, the owner can’t make money while the business is under construction. Business interruption insurance helps recoup the lost revenue.

Rent or lease payments

When a devastating event forces your business to close temporarily, you might still have to make rent or lease payments on your business property or equipment that you don’t own. Business interruption insurance covers the cost of rental and lease payments while your business isn’t making money.

Example: A fire damages an electronics store, making it impossible for the business 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 until the shop reopens.

Relocation costs

If your business is forced to relocate due to a devastating event, business interruption insurance can help cover your moving costs. It can also pay for rent in the new location.

Example: 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.

Employee wages

To retain employees while your business is closed, you’ll need to continue to meet your payroll obligations. Business interruption insurance covers the cost of payroll while your business isn’t making revenue. Most business interruption policies cover the cost of up to one year of pay for each employee.

Example: A pipe bursts at an architecture firm, flooding the office and destroying walls, carpeting, and furnishings. The firm is forced to close for a month for renovation. Business interruption insurance helps the firm meet payroll obligations while the repairs are underway.

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.

Example: A fire destroys a contractor's trailer, forcing him to withdraw from bids and miss revenue expectations. At the end of the quarter, the business still needs to pay estimated taxes on the revenue it made before the fire. Business interruption insurance covers these costs so the contractor can use his money to get the business up and running again.

Loan payments

If your business has loans, you’ll still need to meet your loan obligations when your business isn’t making revenue.

Example: An accounting firm is forced to suspend business after a property inspection finds that its office is structurally unsound. While the business isn’t bringing in revenue, it still needs to make monthly payments on a small business loan. Business interruption insurance covers payments while the business is closed.

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Business interruption insurance does not cover:

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Property damage
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Extra expenses
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Contingent business interruptions
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Losses unrelated to property insurance

Property damage

Business interruption insurance covers the financial – not material – costs of a temporary shutdown. Property damage is covered by commercial property insurance, which is included in a business owner's policy.

Example: A flash flood rips through a warehouse, destroying inventory and forcing major repairs. Commercial property insurance pays to replace the inventory and repair the building, but business interruption insurance compensates the business for the revenue it lost while recovering from the disaster.

Extra expenses

Business interruption insurance covers normal expenses during a temporary shutdown. Extra expense coverage pays for expenses above and beyond a business’s normal operating costs. This rider funds "extras" – i.e., non-ordinary operating costs like leasing equipment, paying employees overtime, or hiring temporary workers – that can help get your business up and running.

Example: A winter storm leaves a small town without power and heat, forcing a local charity to close. The charity provides emergency services, which it needs to resume as soon as possible. Extra expense coverage helps the charity lease new equipment and pay its workers overtime so it can respond effectively to the crisis.

Contingent business interruption

Business interruption insurance only covers losses caused directly by your business’s closure, but your business can suffer indirectly when another company that you’re dependent on shuts down temporarily or permanently due to property damage.

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 business
  • Other nearby businesses to attract customers

Example: A landscaping company depends on a nursery to supply its plants, but a tornado devastates the nursery’s inventory and there are no local alternatives. The landscaping company is forced to suspend business as it waits for the nursery to recover. The company turns to contingent business interruption insurance to cover the revenue it lost during this period.

Losses unrelated to property insurance

Business interruption insurance provides protection when a property insurance claim forces your business to close temporarily. The standard business interruption endorsement does not cover claims related to other incidents, including COVID-19.

Example: A bar is forced to close when the local health department orders non-essential businesses to close due to the presence of the coronavirus in the community. The incident is unrelated to the shop’s commercial property insurance, so business interruption insurance would not cover the lost income. However, small businesses may be able to turn to federal relief programs to help recoup losses related to the virus.

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