Business Interruption Insurance: Why and When You Need It
As a business owner, you know how important every day is to your company’s operations, revenue, and employees. When those operations are suddenly disrupted—by a fire, storm, or other unexpected event—it can threaten your company’s stability. That’s where business interruption insurance comes in. This valuable coverage helps replace lost income and cover ongoing expenses when your business operations are temporarily halted, keeping your company financially secure during recovery.
Offered as an add-on to a business owner’s policy (BOP) or commercial property insurance, this coverage helps replace the income your business loses when normal operations are temporarily suspended.
Even if you’ve heard of business interruption insurance, you may still have questions:
What does it cover? What doesn’t it cover? When is it worth having?
Below, the insurance experts at C&S Insurance explain what you need to know.
What Is Business Interruption Insurance?
Business interruption insurance—also known as business income insurance—is coverage that helps your company recover lost income and cover ongoing expenses when your operations are temporarily halted due to a covered peril.
These perils might include fire, natural disasters, or road closures that prevent you from operating as usual.
A key term to understand is the restoration period—the time it takes for your business to recover from a loss, including restoring inventory, repairing your building, and resuming normal operations.
Four Common Types of Business Interruption Coverage:
- Business income coverage: Replaces lost income and covers payroll, rent, taxes, and other operating costs.
- Extra expense coverage: Covers costs like renting temporary space or equipment, paying overtime, or relocating operations.
- Contingent business interruption coverage: Protects against losses caused by disruptions to a supplier or business partner your company relies on.
- Civil authority coverage: Covers losses when government-mandated closures or restrictions—such as curfews or evacuation orders—prevent your business from operating.
Together, these protections can help shield your company from significant financial losses and keep it afloat during difficult times.
What Does Business Interruption Insurance Cover?
In general, business interruption insurance helps replace income your business couldn’t earn during a temporary shutdown and covers expenses that continue during the restoration period.
- Operating expenses and fixed costs (e.g., rent, mortgages, leases, and taxes)
- Payroll
- Loan payments
- Relocation expenses
- Rent for temporary spaces or equipment
- Training costs for employees learning new equipment
- Repairs to equipment essential to operations
- Revenue lost during the restoration period
By covering these expenses, this policy helps your business recover more quickly after a covered event.
Covered Perils: When Do You Need Business Interruption Insurance?
Many events can disrupt your business for an extended period. Business interruption insurance applies when your operations are halted by covered causes such as:
- Fires
- Wind damage
- Fallen trees or debris
- Lightning
- Theft, vandalism, or riots
- Certain cyberattacks (depending on your policy)
- Government-mandated closures, curfews, or evacuations
For example, if a tree damages your building’s roof and you must close while repairs are made, business interruption insurance can help cover lost income and temporary relocation costs. (Note that the roof repairs themselves would typically fall under commercial property insurance.)
To get the most from your coverage:
- File claims promptly.
- Document physical damage with photos and videos.
- Keep receipts and financial records for reimbursement.
Most policies include a 48–72 hour waiting period before coverage begins. The standard restoration period is around 30 days, but it can often be extended (up to 12 months) by endorsement. Even if your policy expires during that time, coverage typically continues through the end of the restoration period.
What Business Interruption Insurance Does Not Cover
While this coverage is broad, it doesn’t apply to every situation. Business interruption insurance generally does not cover:
- Property damage (covered under commercial property insurance)
- Flood or earthquake losses (unless specifically added)
- Undocumented income not reflected in financial records
- Utility costs (which are typically paused during closure)
- Government-imposed capacity restrictions or lockdowns
- Expenses already paid, such as shipping
- Pandemics, viruses, or communicable diseases (e.g., COVID-19)
Speak with your insurance agent to understand your policy’s exclusions and explore additional protection for uncovered risks.
How Much Does Business Interruption Insurance Cost?
Costs vary based on your business’s size, industry, and location. Your insurance agent can help determine the right coverage limits for your situation.
When estimating your coverage needs, consider:
- Gross earnings and profit projections
- Common risks in your industry
- Average payroll expenses
- Estimated recovery time after physical damage
- Costs to rent temporary space or equipment
Businesses in areas prone to wildfires, hurricanes, or severe weather may face higher premiums due to increased risk.
Protect Your Business with C&S Insurance
Unexpected interruptions can happen to any business. Business interruption insurance provides a crucial safety net—helping you maintain financial stability while you recover.
At C&S Insurance, we help Massachusetts business owners find the right protection at the right price.
Still have questions about whether business interruption insurance is right for you? Speak with an agent at C&S Insurance today.