Business interruption insurance
Business interruption insurance
If a fire or other incident shuts down operations at your company, business interruption insurance can pay for lost revenue, day-to-day expenses, and rent or relocation costs.
Why do you need business interruption insurance?
From fires to storms, unexpected events could force your business to halt its operations. A temporary shutdown can have a long-term impact. When your business isn’t bringing in revenue, the costs of lease payments, employee wages, and other financial obligations can add up quickly.
Business interruption insurance helps your company recover from a forced closure by taking care of day-to-day expenses, lost income, or even temporary relocation. It's also called business income insurance.
Small businesses that purchase business interruption insurance:
- Work from a fixed location, such as a store, office, cafe, or restaurant
- Depend on specific equipment or machinery
- Store essential inventory or supplies
- Have high daily operating costs
- Owe loans, leases, or mortgage payments
What does business interruption insurance cover?
Business interruption insurance activates alongside covered commercial property insurance claims that force closure.
It can help cover:
Lost revenue
If your business can’t serve clients due to a covered peril, such as vandalism, business interruption coverage will help replace lost income. This insurance helps prevent a temporary shutdown from becoming a permanent closure.
Rental payments
If your company shuts down temporarily because of a covered loss, 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.
Relocation costs
If your business has to move to a temporary location due to a direct physical loss, business interruption insurance will help cover the cost of relocation. If rent is higher in the new place, a business interruption insurance policy will usually cover the difference in rents as well.
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.
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 coverage, policyholders 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.
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, a business interruption insurance policy will cover your loan payments while you get back on your feet.
How much does business interruption coverage cost?
Business interruption insurance costs vary tremendously, based on the scope of your business and liabilities.
The cost of business interruption insurance depends on your:
- Commercial property value
- Industry risks
- Coverage limits and deductible
- Business location
- Revenue
- Previous business interruption claims
Who should get business interruption insurance coverage?
Business interruption coverage is valuable to a variety of small businesses (from graphic designers to retail stores to consultants), especially those where damage to your inventory, building, or equipment could force your company to shut down.
Even though it is beneficial across all professions, it is especially useful for technology and software businesses, including:
Computer repair shops
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 repairs, the owner won’t make money while the business is under construction. Business interruption insurance lets the owner recoup the lost revenue.
Software development companies
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.
Business intelligence firms
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.
Telecommunications firms
A natural disaster 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.
What is not covered by business interruption insurance?
While business interruption insurance does provide coverage for financial losses when a property claim forces your business to temporarily shut down, it does not provide all the protection that a small business might need.
For instance, a business interruption policy does not cover:
Property damage
Commercial property insurance helps pay for repair or replacement of damaged property, including computers and furniture. A business owner's policy (BOP) combines general liability insurance with commercial property insurance into a bundle. It usually costs less than purchasing these policies separately.
Business interruption insurance is a property insurance rider that covers your costs when the incident results in forced closure.
Short or minor interruptions
Short interruptions that last less than 72 hours, such as most power outages, aren't covered by business interruption insurance. Coverage also excludes incidents that cause you to scale back, but not completely cease operations.
Interruptions unrelated to property damage
Business interruption insurance typically only becomes active when you make a property insurance claim. It has coverage exclusions for claims unrelated to property damage, such as harm from a cyberattack.
Cyber liability insurance can pay for legal expenses, credit monitoring services, and other recovery costs if a data breach or cyberattack affects your company or your clients.
Other common questions about business interruption insurance
How do you get a certificate of insurance?
TechInsurance is a trusted insurance expert for all small business owners, including contractors and consultants, with extensive knowledge of the IT sector. Our licensed insurance agents are available to answer your questions and help you find the coverage that's right for your business needs.
With TechInsurance, you can easily download a certificate of insurance for your small business, often on the same day you buy business interruption coverage or another type of insurance.
This comes in handy for companies and consultants that need proof of insurance to sign a contract or a lease and don’t have time to call an insurance company for documentation. Clients and landlords may ask for a certificate of business interruption insurance or other types of business insurance to show you’re insured.
Who is eligible for business interruption insurance?
No one knows when an unexpected event will force their business to close temporarily. This is why most companies could benefit from business interruption insurance. This type of coverage is particularly beneficial if your business operations costs are high.
To qualify for business interruption insurance, most insurance providers require your business to have a commercial location. If you operate your business out of your home, you likely won’t be able to purchase this coverage.
Additional factors can also affect your business’ eligibility for business interruption insurance coverage, including:
- Business classification or industry
- Previous business interruption claims
Can endorsements be added to a business interruption policy?
Business interruption insurance is attached to your business’ property insurance policy or business owner's policy. You can enhance your policy’s basic coverage by adding an insurance endorsement to this rider.
Extra expense coverage
Extra expense coverage takes care of non-ordinary operating expenses that can help your business better manage a shutdown. Examples include leasing equipment, paying employees overtime, or hiring temporary workers.
Contingent business interruption insurance
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
Contingent business interruption insurance pays for your ongoing expenses while you search for a replacement. As with business interruption insurance, this policy is tied to commercial property insurance. It activates with a covered event, such as a fire or storm.
Does business interruption insurance cover losses related to COVID-19 or other illness-related shutdowns?
Because business income coverage is tied to your commercial property policy, it most likely will not cover claims related to the coronavirus pandemic or other diseases. In most cases, your building must undergo physical damage in order for this policy to become active.
Most business insurance policies exclude coverage related to communicable diseases. If you think you might be eligible for a claim, contact your insurance company's claims department.