What does business interruption insurance cover?

If your business can’t serve customers, sell products, 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.

When a devastating 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 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.

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.

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 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.

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 his revenue goals. 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.

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.

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 forklift accident in a warehouse destroys inventory and forces major repairs. Commercial property insurance pays to replace the inventory and repair the building. Business interruption insurance compensates the business for the revenue it lost while recovering from the damage.

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.

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.

Business interruption insurance provides protection when a property insurance claim forces your business to temporarily close. Policies usually exclude claims unrelated to property damage.

You can add endorsements to cover some business interruption exclusions. For example, a communicable disease rider extends coverage to closures due to infectious disease, such as COVID-19. However, you'll likely need to prove that the disease was present on your property (i.e. either your staff or customers fell sick) – it won't cover every business interruption due to coronavirus.

Example: A bar is forced to temporarily shutter when the local health department traces a coronavirus outbreak back to its premises. The bar has business interruption insurance with a communicable disease rider, which temporarily covers its operating costs and lost revenue.

Business interruption insurance only covers losses caused directly by your business’s closure. But your business can suffer indirectly when a company that you depend on shuts down temporarily or permanently.

Contingent business interruption insurance provides financial assistance when the loss of a primary supplier, partner, or customer affects your ability to do business. As with business interruption insurance, it must be tied to a commercial property claim.

Example: A landscaping company depends on a nursery to supply its plants, but a windstorm 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 its lost revenue.

To qualify for a claim on your business interruption insurance, the forced closure must last for a certain amount 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.

Example: A tree branch lands on the power lines outside a computer repair shop and the power goes out for 24 hours. The shop closes for the duration, but the length of time is not enough for it to collect on its business interruption policy.