It’s a fact of life for small businesses that they must occasionally consider worst-case scenarios. Years of hard work can be unexpectedly wiped out by natural disasters like fire and floods. Critical and sensitive information can be exposed or stolen by cyberattacks.
In any of those events, shutting the business down for weeks or months may be necessary to rebuild, putting revenue in jeopardy.
Those situations are what commercial insurance — specifically, business interruption insurance — is designed to cover. It can help business owners recoup financial losses when operations are temporarily suspended.
It’s important to mention that business interruption insurance is typically offered separately from general commercial insurance. Many business owners are under the impression that business interruption insurance is included in a standard property insurance policy, but it usually is not.
Learn what business interruption insurance is, what it does and doesn’t cover, and how your business can best take advantage of what it offers.
What Is Business Interruption Insurance?
Coverage depends on your insurer and specific policy, but standard business interruption insurance may include the following protections:
Lost Income
The most important coverage in a business interruption policy is possibly compensation for revenue the business had expected to earn before ceasing operations. Insurers typically calculate this based on historical financial records and projected earnings.
Lost income coverage may help businesses meet their financial demands and expenses while they remain shut down.
Operating Expenses
Rent, lease payments, utility bills, employee payroll, loan repayments, and tax payments remain due even when a business must close down temporarily. Business interruption insurance may cover these expenses to avoid long-term financial damage.
Relocation Costs
When a business must make repairs or construction to its regular physical location, it may be possible for it to continue operations in an alternate, temporary location. Relocation insurance may cover the cost of leasing space, moving equipment and supplies, and other expenses that may arise.
Additional Expenses
Business interruption insurance may offer coverage for one-off expenses that can speed up recovery or rebuilding. These might include hiring repair contractors, ordering new equipment, ramping up marketing efforts, meeting rebuilding compliance standards, and other costs.
These one-off expenses fall under extra expense coverage, which is often included or can be added to a policy.
What Coverages Does Business Interruption Insurance Exclude?
In most cases, business interruption insurance doesn’t cover the following losses or expenses.
Physical Property Damage
Physical damage to your business property is usually a part of commercial property insurance coverage and is not included in a standalone business interruption policy.
Pandemics and Government-Ordered Shutdowns
A standard business interruption policy excludes losses from government-ordered shutdowns, such as health emergencies or pandemic-related closures. Some insurers offer riders or endorsements to cover these events, but they are not standard.
Utility Outages
If your business experiences power, water, or internet outages due to off-site issues (e.g., a citywide blackout), those losses are typically not covered.
However, if an outage results directly from damage to your insured property—such as a fire damaging your electrical system—then coverage may apply — but double-check your policy to verify.
Partial Revenue Loss
If a business partially reopens after an event but experiences lower revenue than normal, business interruption insurance typically does NOT cover the difference.
Additional Considerations About Business Interruption Insurance
To get the most from business interruption insurance, keep these points in mind:
- Understand Your Revenue Trends – Insurers base lost income coverage on past revenue. Keep accurate financial records to ensure proper coverage.
- Assess Recovery Time Needs – Consider how long you’d need to fully recover after a disruption. Make sure your policy’s time limit is sufficient.
- Review Policy Exclusions – Pay attention to what your policy doesn’t cover and consider endorsements for additional protection if needed.
- Avoid Underinsurance – Miscalculating recovery time or revenue projections can leave coverage gaps. Work with an insurance professional to get realistic estimates.
- Double-Check Your Policy – Don’t assume your standard property insurance includes business interruption coverage. If in doubt, confirm with your insurer.
Final Thoughts
Business interruption insurance is a critical safety net that can protect small businesses from severe financial losses during unexpected closures.
However, understanding its limitations is just as important as knowing what it covers. Take time to review your policy details, evaluate your risk factors, and explore additional coverages if needed.
If you’re unsure whether your current insurance adequately protects your business, consult with a trusted commercial insurance agent to tailor coverage that fits your needs.
Garrett Insurance: Helping Small Businesses Survive Through Challenges
At Garrett Insurance, we offer comprehensive coverage to help small businesses stay viable, even when they need to take time off to regroup and reopen. We can design a comprehensive package policy covering most service disruptions, including business interruption, extra expenses, and other risks that can affect financial stability. To learn more, contact us online to get a free quote.
