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Business Interruption Insurance
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What does business interruption insurance cover?

This policy can pay for operating expenses and lost revenue when a fire or other incident covered by your commercial property insurance forces your business to close.

Business interruption insurance can cover:

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Lost revenue
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Rental payments
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Employee wages
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Relocation costs
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Tax payments
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Loan payments

Lost revenue

If your business can’t serve clients due to a covered incident, 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.

Rental payments

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.

Employee wages

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 depends exclusively on government contracts to generate revenue, but a government shutdown leaves the company in deep trouble. With its contracts frozen, the company depends on business interruption insurance to ensure its employees are paid each week.

Relocation costs

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.

Tax payments

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.

Loan payments

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.

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Business interruption insurance does not cover:

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Property damage
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Extra expenses
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Losses unrelated to property insurance

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Contingent business interruptions
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Short or minor interruptions

Property damage

Commercial property insurance covers property damage. Business interruption insurance is a property insurance rider that extends coverage to include not just the material effects of property damage, but the financial effects as well.

Example: A fire tears through an IT training facility, damaging the facility’s building and equipment. Commercial property insurance pays to replace the equipment and remodel the building, while business interruption insurance compensates the facility for lost revenue due to its temporary closure.

Extra expenses

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.

Contingent business interruption

Unless your policy has a contingent business interruption insurance endorsement, business interruption won’t cover the revenue lost if another business your company depends on permanently closes or experiences a business interruption. 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 the manufacturer ceases operations, the company turns to contingent business interruption insurance for support.

Short or minor interruptions

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.

Losses unrelated to property insurance

Business interruption insurance is tied to your commercial property insurance. It typically becomes active when you make a property insurance claim. Losses from the coronavirus (COVID-19) and other incidents unrelated to property insurance are usually not covered.

Example: A computer repair shop is forced to shutter its doors because of state-mandated closures designed to control the coronavirus. The closure is unrelated to the shop's commercial property insurance, so business interruption insurance does not provide coverage. However, federal relief programs may be able to help the shop recoup its losses.

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