Business interruption insurance

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Page written by Chris Godfrey. Last reviewed on July 31, 2024. Next review due October 1, 2025.

Business interruption insurance is business insurance that covers organisations for loss of income if they are unable to operate due to events beyond their control – such as severe weather, fire or power cuts. If the worst should ever happen, this type of insurance can provide a backstop to stop your business going under.

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What is business interruption insurance?

Business interruption (BI) insurance replaces business income that is lost if trading is stopped due to direct physical loss or damage – as might be caused by a fire or a natural disaster. BI coverage typically includes business income coverage, extra expense coverage, contingent business interruption coverage, or civil authority coverage. The policy may also cover operating expenses, a move to a temporary location if required, plus employee payroll, taxes, and loan payments.

In rare cases, business interruption insurance can apply if a civil authority shuts down a business due to physical damage to a nearby business or local infrastructure, resulting in a loss to your firm.

What are the types of BI insurance?

‘Business interruption insurance’ is an umbrella term for different types of BI coverage that are often bundled together in common business insurance policies, such as commercial property insurance and business contents insurance. However, it would be a mistake to assume that you will be covered for every type of business interruption event. All-inclusive business insurance policies may include or exclude different types of BI claims. For this reason, you should check your various insurance policies to ensure you have all the BI cover you require.

The most common forms of business interruption coverage include:

Business income coverage: This form of coverage can replace lost business income and paying ongoing expenses if your business is forced to close temporarily due to a covered loss. Use the insurance to pay for missed profits, payroll, rent, taxes, and other operating costs.
Extra expenses coverage: Covers additional costs your organisation may need to pay to avoid shutdown after a major incident. Cover may pay for items such as renting temporary office space or equipment, paying employee overtime, or covering the cost of temporary transportation or relocation.
Contingent business interruption coverage: Protects your company from losses caused by a disruption in the operations of a supplier or other business partner on which your company relies. For example, if a fire prevents your supplier from delivering goods to your company, contingent business interruption coverage may help compensate for your lost income.
Civil authority coverage: Compensates your firm for lost income caused by government-mandated closures that prevent you from operating. For example, if your business is forced to close due to a mandatory evacuation order or a curfew issued by local authorities.

Important note: Business interruption insurance is usually not sold as stand-alone cover. It is typically bundled into your general business insurance and property cover polices.

What does BI insurance cover?

Standard business interruption insurance typically covers the following:

Profits: Based on prior business performance, (6 to 12 months), BI reimburses you for lost income/profits had the claim event not occurred.
Fixed costs: Includes general operating expenses and other incurred costs of doing business.
Temporary location: Some policies may cover the costs involved with moving to and operating from a temporary business location whilst your main location is out of order or being repaired.
Commission and training cost: In the wake of a fire, natural disaster or such event, companies usually need to replace machinery and may have to retrain staff on using the new equipment. BI insurance may cover some or all of these costs.
Extra expenses: Provides reimbursement for reasonable expenses (beyond the fixed costs noted above) that allow the business to continue operating while it gets back to normal.
Civil authority ingress/egress: Pays out if a government-mandated closure of your business premises causes financial loss. Examples include forced closures because of government-issued curfews or street closures.
Employee wages: Helps the business owner to make payroll when they cannot operate and prevents the loss of employees whilst the business is shut down.
Taxes: Taxes never go away, even during a disaster. BI ensures a business can pay due taxes on time and avoid penalties.
Loan payments: Helps a business make loan payments even when they have no income.

Special considerations: BI policies only pay out if your business actually sustains a loss as a result of the interruption. The amount that can be recouped by your business cannot exceed the limit stated in your policy.

What isn't covered with business interruption insurance?

Standard business interruption insurance does not cover the following:

Broken items resulting from a covered event or loss (such as glass or displays)
Flood or earthquake damage, which are covered by a separate policy
Undocumented income that’s not listed on your business’ financial records
Utilities – gas, electric, water, telephone etc.
Pandemics, viruses, or communicable diseases (such as COVID-19) – see below:

Special exclusions

Standard business interruption insurance does not reimburse policy holders if the business is closed due to a pandemic. Even some all-risk insurance plans have specific exclusions for losses due to viruses or bacteria.

Policy restoration period

BI cover typically does not start the moment disaster strikes your business. The ‘restoration period’ of your business interruption coverage is the length of time where your policy will help pay for lost income. In most cases, there’s a 48 to 72 hours waiting period before your policy kicks in with income coverage.

How much does BI insurance cost?

BI insurance is usually not sold as a standalone policy, it is typically bundled into your general business or commercial property insurance as a line item and where premiums can start at less than $10 per month. Be aware that just as no two US businesses are alike, so no two business interruption insurance needs are the same. Costs will depend on your business type, your turnover and the risks attached to where you are located and what you do or sell.

How much coverage do I need?

You need enough cover to ensure your business can continue to pay its bills and keep its staff when you are forced to close due to an unforeseen event. To calculate how much this is, you need to total your monthly outgoings – all items, (rent, wages, taxes, loan costs etc) – and then multiply the total by however many months you think you may be closed down, (typically 3 to 6 months but could be longer). Keep in mind that BI insurance does not pay to rebuild the physical infrastructure of your business premises or cover lost stock, such as perishable items. BI insurance only covers lost income due to forced shutdown.

Policy limits

Business interruption coverage is often limited to an amount based on a certain amount of activity over a certain amount of time. For example, some coverage may restrict business interruption coverage to a 12-month financial period. In addition, there may be limits to the types of expenses that can be claimed or the types of revenue lost that may be claimed. Ensure you understand your specific policy to avoid surprises on what may or may not be covered should your business be interrupted.

How do I submit a claim?

Check the terms of your policy. You can usually submit a claim online and after the initial grace period during the restoration period as set by your policy.

Other essential business insurances:

BI insurance is great if your business is forced to close by an unforeseen event, but it’s not the only type of cover every business needs. To make sure your organisation is never at risk, you also need:

How Swoop can help

All business involves risk, but that doesn’t mean you have to suffer the consequences if things go wrong. Don’t let an accident or oversight become a catastrophe for your business. Contact Swoop today to compare top-quality employers’ liability cover from different providers and to discuss all your business insurance needs.

Written by

Chris Godfrey

Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.

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