What does Business Interruption Insurance Cover?

Thang Truong
Thang Truong
Updated on:

What does Business Interruption Insurance Cover?

Business interruption insurance (or business income interruption insurance) covers business income loss after a catastrophic event, keeping it operational in the face of storms, cybersecurity hacks, supply chain issues, structural damage, and more. It is popular with asset-heavy businesses such as restaurants, processing centers, food trucks, and massage parlors that conduct business under one roof.

A policy can cover your employees’ wages and pay for temporary/permanent equipment, allowing business owners to continue to earn a living on the long road to recovery.

Note, business interruption insurance is intended to be an extension of your property insurance coverage and covers profit-earning activities, not solely physical damage done to your owned or leased place of business.

>>MORE: Commercial Property Insurance: Coverage, Cost, and Best 5 Providers

How Much does Business Interruption Insurance Cost?

Pricing for business interruption insurance with $1 million/occurrence and $2 million/aggregate limits have annual premiums between $500 and $1,500, depending on the insurance provider, state, and industry. Food service industries tends to reach the higher end ($500-$7,500), whereas business consulting ($400-$2,500) and cleaning ($750-$1300) are on the opposite end of the spectrum.

How Much Business Interruption Coverage do I Need?

To start, look at your business future profit projections to determine the amount of coverage. Your limits should be calculated based on your business’ gross earnings. It is important to get this right, as carriers may impose a coinsurance penalty if it is later determined your business was underinsured.

What is an Indemnity Period in Business Interruption Insurance?

Indemnity Period is the period in which business’s results are affected due to loss or damage. It begins on the date of loss or damage incurred and ends on the dates no later than the maximum indemnity period specified in the policy. 

Benefits last through an indemnity period, the length of time benefits are paid under the plan. Typical indemnity periods range between 6 months and 24 months, the amount of time depending on, the business type and the type of claim.

Note, reimbursement from your insurer is contingent on conducting repairs to your business at a reasonable pace.

Types of Exclusions in Business Interruption Insurance

Note, business interruption insurance does not cover every event that causes your business to hit the wall.

Exclusions for business interruption insurance include utility bills, income from secondary sources that are not reported against your policy’s income cap, and damage to your business personal property which is covered by a separate commercial policy. For this reason, it is important to consult with an agent to ensure you are covered in all circumstances, either through business interruption insurance or a separate policy under your Business Owners Policy.

>>MORE: The 5 Best Business Interruption Insurance Companies

Final Thoughts

Business interruption insurance is critical in addressing catastrophic events, causing power outages that could affect your livelihood and those of employees. It can also protect your businesses against computer hardware problems, telecom failure, and software issues. Be sure to explore your options by comparing policies from multiple carriers to find the one that best suits your business’ needs.

Thang Truong

Thang Truong covers small business insurance and small business success at BravoPolicy. He is a licensed P&C insurance agent. Previously, he held product leadership positions at realtor.com, Capital One, NerdWallet, and Mulberry Technology. He holds a MBA degree from UC Berkeley - Haas School of Business.

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