Article Reviewed by a licensed insurance professional: Sam Meenasian (CA dept of insurance license #0F75955).
Estimated reading time: 6 minutes
Key Takeaways
- Business interruption insurance protects companies during unexpected shutdowns caused by events like fires or vandalism.
- This insurance covers lost revenue, fixed costs, extra expenses, and potential civil authority closures.
- Certain events, such as pandemics or damage from floods, may not be covered by business interruption insurance policies.
- Costs for this insurance vary, typically ranging from $50 to $150 a month, often bundled within a Business Owner’s Policy (BOP).
- Having business interruption insurance is essential for all businesses, particularly small ones vulnerable to financial strain during closures.
Everyone who owns a business can tell you that things you cannot control just happen. When those things happen, business gets interrupted. What do you do if your business operations get interrupted for a few days or even longer? This is where business interruption insurance can step in to save the day!
Understanding what qualifies as a business interruption and what insurance for these kinds of issues can mean will help you to protect your company when the unexpected happens. There is no reason to avoid added protections as a business owner, especially when there are quality insurance products that will help your company survive even when you have to shut down operations for a bit.
What is a Business Interruption?
Business interruption is typically the necessary suspension of operations caused by direct physical loss or damage to insured property from a covered peril, during the defined period of restoration. These kinds of covered events are typically things like fire, windstorm, certain water damage, vandalism/riot—events that more commonly cause physical damage, forcing closure. The period of restoration typically ends when the covered damage is repaired, rebuilt, or replaced (or reasonably could be), and some policies allow an extension (e.g., “extended business income”) for ramp‑up.
No matter how big or small your business is, you don’t want to have to close your doors for even a single day, let alone many days or even months. However, if this kind of interruption is necessary, you need to be prepared to protect your company from going under by having the right insurance in place.
How Business Interruption Insurance Can Help
Business interruption insurance can help companies that are facing a shutdown or closure for an extended period in a variety of ways. These protections are often the difference between getting back on your feet as a business owner and having to shut your doors for good.
Business interruption insurance covers:
· Lost revenue — based on past sales numbers
· Fixed costs — rent, utilities, taxes, payments on loans
· Extra expenses — like having to relocate to a different location while your business locale is being repaired, or disaster relief efforts are underway
· Civil authority closures — civil authority may apply when a government order blocks access to your premises because of covered physical damage to nearby property, usually after a waiting period and only for a limited time.
· Contingent interruptions — Contingent BI may cover income loss caused by direct physical loss/damage at a key supplier or customer you depend on, usually if they’re defined/scheduled in your policy.
As an example, let’s say that you own a retail store and there is a fire. You will have insurance for the damage, but repairs will take weeks. You need to be able to keep selling products, paying your staff, and working with vendors for supplies in spite of the construction process. Your business interruption insurance will help you cover your costs while you find a new spot to do business from during the construction efforts at your main business location.
What Things Are Not Covered by Business Interruption Insurance?
Some things won’t be covered by business interruption insurance. Just like any other insurance product, there are exceptions to your coverage. You need to know what these exceptions are in advance so that you are not caught by surprise when it comes time to make a claim for a business interruption you have suffered.
· Communicable disease/pandemic shutdowns are often excluded unless you have a specific endorsement, and even then, coverage may be limited.
· Damage from floods or earthquakes may not be covered due to protections and funding from other policy types for this specific kind of disaster
· Undocumented income may not be protected since you cannot prove that this income is necessary for business operations
How Much Does Business Interruption Insurance Cost?
Costs for these kinds of policies can vary. Industry estimates often show business interruption bundled in a BOP costing anywhere from tens to a few hundred dollars per month, but quotes may be outside that range. You might pay less if this coverage is bundled with your other insurance products. Some areas may be much more expensive due to local risk profiles, and you might see premiums along the lines of $480 to $1,560 in these areas.
Most people get business interruption protection insurance in a bundle with their Business Owner’s Policy(BOP) protection coverage. These two insurance products combine all of the various insurance types, from business interruption coverage to liability coverage, in one complete insurance policy. This can be ideal for most kinds of businesses, and you might want to shop for this specific insurance policy.
Is Business Interruption Insurance Worth it?
No business on earth is fully protected from business interruptions. You should consider this coverage a safe bet, no matter what kind of niche you sell or operate in. An increasingly large number of businesses all around the world are suffering business interruptions these days due to ransomware/outages, cyber interruption issues. Even if your business isn’t your sole source of income, having any company that you own shut down for even a few days can be stressful, both personally and financially.
You can avoid this stress by purchasing insurance that may protect your company from failing due to things that you could never have predicted.
Waiting Period for Business Interruption Insurance
Most business income (business interruption) claims require direct physical loss or damage from a covered peril that causes a necessary suspension of operations. Many policies may also have a waiting period (often 48–72 hours) before business income payments begin.
How Business Income Losses are Calculated
Insurance carriers generally calculate business income using your financial records (profit-and-loss statements, sales history, payroll records, tax filings) to estimate what you would have earned if the loss hadn’t happened, plus eligible continuing expenses. Accurate documentation is key to a smoother claim.
Key Takeaways
1. Business interruptions happen when your company has to cease operations due to things like weather, civil unrest, or a fire.
2. Insurance can help you to cover your costs while you get through the interruption period, so that you don’t have to close your business for good.
3. Insurance costs vary widely. Some small businesses may pay about $50 to $150 per month for general liability coverage, while others pay more based on their operations and risk profile. In some cases, general liability can be included in a Business Owner’s Policy rather than purchased as a standalone policy.
4. Bundling can help you save money on this kind of policy, and you should consider business interruption insurance that comes along with other protections for your business.
Small businesses are even more vulnerable when the worst comes to pass than large companies. Most small businesses cannot afford to close their doors for more than a few days. You can avoid having to shut your doors for good by having a quality business interruption protection plan in place to support your company in its time of need.
