Business Interruption Coverage
The unexpected shutdown of your business could cause irreparable damage, even after you reopen for business.
Fortunately, business income insurance, also known as business interruption coverage, can protect your business by covering income lost should you have to temporarily suspend operations.
In this article, we’ll explain the benefits of this type of business insurance, the average cost of coverage, and the best providers for business interruption coverage.
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Understanding Business Income Insurance Coverage
A business income insurance policy can be a valuable asset in the event that you have to shutter your business due to covered types of property damage.
This type of insurance is typically included with a business owner’s policy, supplemented by a general liability policy and business property insurance.
If a protected business suffers property or equipment damage due to things like fire, wind, or flooding, a business income insurance policy could make up for net business income losses, payroll expenses, mortgage payments, and more while the damages are being repaired.
If your business has a physical location, you need business interruption coverage.
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What Is Covered by Business Interruption Insurance?
Examples of damage that could trigger business interruption insurance include:
- Damage by fire
- Theft of equipment
- Damage due to falling objects
- Wind damage from hurricanes and tornadoes
- Electrical damage due to lightning strikes
If your business has suffered a covered loss, your business insurance provider can provide financial relief to cover certain business expenses and lost income for a limited period.
Types of expenses usually covered by business income coverage include:
- Temporary relocation expenses: If you are able to resume business by temporarily moving to a new location.
- Lost net income: Based on business financial documents from previous periods.
- Loan payments: If you have loan payments due during the covered period.
- Taxes: If you have tax payments due during the covered period.
- Payroll expenses: The amount needed to pay your permanent employees while repairs are being completed.
Exclusions
Surprisingly, not all natural disasters and property damage events are covered by business interruption insurance.
Things like earthquakes and flooding aren’t typically included in these policies. While rent and mortgage payments may be disbursed, utilities may not be.
You’ll want to review your policy in detail to learn exactly what is covered and what exclusions may apply.
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How Long Am I Covered?
The average business interruption policy covers expenses for one month. However, your insurance company may be able to extend payment for up to one year, depending on the extent of the damage and the details of your policy.
Business owners are also encouraged to opt for extra expenses coverage to protect additional expenses and repairs that aren’t covered by either business income, general liability, or commercial property insurance.
Having additional coverage could help to sustain your business longer should you run into any delays with repairs.
How Much Is Business Income Insurance?
The cost of business income insurance varies depending on your business.
Because this type of business insurance covers the net income, you’ll need to provide financial documents to prove your finances.
The higher your business income, the more your business income insurance will cost.
Other factors that could affect the cost of coverage:
- Type of business you run
- Number of employees
- Business location
- Value of business property and covered equipment
Business Income Coverage FAQ
Payments are made to cover net lost income, payroll expenses, mortgage and rent, and even tax payments. You’ll want to review your policy to determine exactly what’s included in your business insurance policy.
Business income insurance usually provides financial assistance in the event of a fire, theft, wind damage, and other covered events. Your business property insurance will cover repairs to the property. General liability insurance may also cover some losses not covered by business interruption insurance. Small business owners are encouraged to buy a business owner’s policy to bundle all three policies.
Businesses can expect to receive disbursements for at least 30 days when covered by business income insurance. Depending on your insurance policy, the extent of the damage, and the time needed to make repairs, your covered period can be extended up to a year to provide additional coverage for business expenses and lost income.
Business income insurance doesn’t usually have a deductible to meet before receiving payments. Instead, it is common for policies to include a waiting period of up to three days after the damage before restoration can begin.
Yes, business income insurance is also known as business interruption insurance.
Payroll expenses are included in business income insurance. Protected businesses can expect the amount needed to pay all permanent employees hired at the time of damage for the duration of the covered period.