What does business interruption insurance cover?

If your business can’t serve clients due to an incident covered by your commercial property insurance, business interruption insurance will help replace lost revenue. This insurance helps prevent a temporary shutdown from becoming a permanent closure.

Example: A fire destroys a computer repair shop, and rebuilding the shop could take up to a year. While commercial property insurance covers the cost of construction, the owner won’t make money while the business is under construction. Business interruption insurance lets the owner recoup the lost revenue.

If your business shuts down temporarily, you may still have to make rental payments on property or equipment. Business interruption insurance covers the cost of these payments while your business is closed.

Example: An ice storm damages a telecommunications firm's infrastructure, making it impossible for the business to serve clients. While it repairs its equipment, the firm still needs to make rental payments on its commercial property. Business interruption insurance helps cover rent payments while the firm recovers.

To retain employees during a temporary shutdown, you’ll need to make sure they keep getting paid. Business interruption insurance typically covers up to one year of pay for each employee while your business is closed.

Example: A software development company has all of its computers and electronics stolen during a burglary at its office complex. Until it can replace the equipment, the company depends on business interruption insurance to ensure its employees are paid each week.

If your business has to temporarily move due to a covered incident, business interruption insurance will help cover the cost of relocation. If rent is higher in the new place, business interruption insurance will usually cover the difference in rents as well.

Example: An intruder breaks into a data architecture firm, destroying vital equipment. The firm is forced to relocate to a more secure, but more expensive location while it rebuilds its clients’ systems. Business interruption insurance makes the relocation affordable by covering the difference in rent between the two locations.

Even if your business isn’t bringing in revenue, it still needs to meet its tax obligations every quarter or year. With business interruption insurance, you don’t need to worry about whether or not you have the funds to pay the taxes you owe while your business is temporarily out of commission.

Example: A business intelligence firm closes its doors to repair damage caused by a burst pipe. Before the business is up and running again, it needs to pay estimated taxes. Business interruption insurance helps the firm meet its tax obligations while finances are tight.

When your business is shut down, you still need to meet your loan obligations. If a covered incident forces your business to close, business interruption insurance can cover your loan payments while you get back on your feet.

Example: A property inspection finds that a web development firm's office is structurally unsound and orders the business to vacate the premises. The business isn’t bringing in revenue, but it still needs to make monthly payments on a business loan. Business interruption insurance steps in and temporarily takes over these loan payments.

Commercial property insurance helps pay for repair or replacement of damaged property. Business interruption insurance is a property insurance rider that covers your costs when the incident results in forced closure.

Example: A fire tears through an IT training facility, damaging the building and equipment. Commercial property insurance pays to replace the equipment and remodel the building. Business interruption insurance compensates the facility for lost revenue during the renovation.

Unless your policy has an extra expense coverage endorsement, business interruption insurance doesn't typically pay for expenses that are above and beyond a business’s normal operating costs. These expenses include costs like leasing equipment, employee overtime pay, and hiring temporary workers.

Example: A cybersecurity firm shuts down temporarily after a vandal destroys its equipment, but clients depend on the firm to maintain their online security. The firm uses extra expense coverage to lease new equipment and pay workers overtime so it can continue to ensure its clients’ security.

Unless your policy has a contingent business interruption insurance endorsement, it won’t cover the revenue lost if another business your company depends on closes. This can be a problem if you rely on:

• A single supplier or manufacturer for equipment
• A few major clients for most of your revenue
• Referrals from another business to generate business

Example: A telecommunications company specializing in mobile broadband depends on a single manufacturer to supply wireless routers to its customers. When a fire forces the manufacturer to close, the telecom company turns to contingent business interruption insurance for support.

Business interruption insurance typically doesn’t cover short interruptions that last less than 72 hours, such as most power outages. It also doesn’t cover incidents that cause you to scale back, but not completely cease operations.

Example: A car hits a utility pole outside an IT consulting agency and the building loses power for the day. Unfortunately, business interruption does not cover any lost profits since the building was only closed for one day.

Business interruption insurance typically only becomes active when you make a property insurance claim. It has coverage exclusions for claims unrelated to property damage – like business interruptions due to COVID-19.

A communicable disease rider extends business interruption coverage to closures due to infectious disease. To use this rider, you usually need to prove that the disease was present on your property (i.e. either your staff or customers fell sick) – so it won't cover every business interruption related to coronavirus.

Example: A computer repair shop is forced to shutter its doors because of state-mandated closures designed to control the coronavirus. The closure isn't due to any property insurance claim, so standard business interruption insurance does not provide coverage. However, a communicable disease rider might cover the closure if there was an outbreak on the premises.