Business Interruption Insurance: Coverages and Costs

Preserving cash flow is critical for small businesses. Business interruption insurance can help your company stay solvent if you have to halt operations for certain reasons.

The coverage replaces lost income and helps you cover ongoing expenses when a covered event forces you to shut down temporarily.^[1] It’s especially important for small businesses, freelancers, and contractors who rely on steady revenue.

If you’re considering business interruption insurance as part of your overall insurance coverage, here’s how it works, how to determine whether you need it and how much, and steps to obtain coverage.

What is business interruption insurance?

Business interruption insurance, also known as business income insurance, helps replace revenue when your business is forced to pause operations in certain situations. It’s most often included as part of a business owners policy (BOP).

A BOP primarily protects your business from property damage, theft, and liability risks. The included business interruption coverage can protect your bottom line by providing reimbursement for lost income and ongoing expenses like rent, taxes, and loan payments.

But this coverage kicks in only if a covered peril (like fire, storm damage, or vandalism) triggers the interruption.

How business interruption insurance works

As with other forms of insurance, business interruption insurance offers financial protection in return for a premium. If your business experiences a covered event that causes a temporary shutdown, your insurer reimburses you for lost income and eligible expenses.

But it’s a good idea to keep a few things in mind:

• Coverage limits: Your policy will only pay out up to your coverage limit, even if your expenses exceed that amount.

• Restoration period: A standard policy will provide coverage for 30 days while you work to get your business back up and running. In some cases, you can extend that up to 360 days.

• Waiting period: Policies usually have a waiting period of 48 to 72 hours before the restoration period begins.

To file a business interruption claim, you’ll typically need documentation showing proof of loss, your pre-loss income, and your ongoing expenses.^[2]

What business interruption insurance covers

Business income insurance includes several essential coverages:

• Lost net income: It reimburses you for the income you would’ve earned if a covered event hadn’t forced your business to close.

• Continuing expenses: It helps cover ongoing costs like payroll, rent, taxes, and loan payments so you can keep your operations afloat during downtime.

• Temporary relocation or extra expenses: It can pay for temporary workspaces, rented equipment, or other additional costs needed to resume operations quickly.

• Supplier-related interruptions: Some policies also cover lost income if a key supplier’s shutdown prevents you from running your business. This is called contingent business interruption coverage.

Here are a few examples of when business interruption coverage can kick in:

• Vandalism forces your physical location to close. Your business interruption insurance covers the profits you would’ve earned and the ongoing rent.

• Your building sustains damage from a fallen tree. Your policy covers your move to a temporary space and payroll to stay afloat.

• A key supplier’s factory sustains property damage. With contingent business interruption, your policy helps cover income losses caused by the disruption.

Business income and extra expense coverage

Business income coverage replaces the profits you lose during a covered shutdown, while extra expense coverage pays for costs you incur to get back up and running faster.

Covered expenses typically include:

• Payroll and employee benefits

• Rent or mortgage payments

• Taxes

• Temporary equipment or workspace rentals

• Relocation costs

For example, if a fire forces your restaurant to close for three months, business income coverage can replace lost revenue. Extra expense coverage could pay for renting a food truck to keep serving customers.

Contingent and civil authority coverage

Your policy may also include civil authority coverage, which pays out when a government order forces you to close. For example, it would apply if a road closure prevents customers from reaching your store. It’s usually limited to two weeks.

Additionally, contingent coverage can kick in when suppliers shut down due to physical damage, such as a flood, delaying delivery of your inventory.

What business interruption insurance doesn’t cover

While business interruption insurance can provide a range of protections, it won’t cover every event that could disrupt your business. These are some common exclusions to keep in mind:

• Physical damage: If something interrupts your business without property damage, standard coverage may not apply.

• Flood or earthquake damage: Natural disasters like these typically require separate riders or policies.

• Pandemics: Most policies exclude shutdowns due to disease outbreaks.

• Utility shutoffs: Your policy likely won’t cover a power or water shutoff if it’s due to non-covered reasons. But you may be able to add a utility services endorsement.

• Undocumented income: You must provide proof of income and expenses to avoid claim denial.

How much does business interruption insurance cost?

On average, small businesses pay roughly $450 to $1,560 annually for a business interruption policy, depending on their size, industry, revenue, and risk exposure.

A small freelance business with low overhead may pay close to the low end, while a high-revenue restaurant in a storm-prone location may face rates near the high end.

Factors that affect the cost of business interruption insurance

The price you pay for business interruption coverage depends on the unique risks and needs of your business. Here are some of the biggest factors that influence your premium:

• 

  Industry

  If you’re in a higher-risk field, like retail, hospitality, or manufacturing, you’ll pay more, as interruptions are more likely and expensive.

• 

  Location

  Operating in an area prone to crime, hurricanes, wildfires, or other perils will likely mean higher premiums.

• 

  Coverage limits

  The more your business earns and the greater your expenses, the more coverage you’ll need. Higher limits and a longer restoration period mean more protection, but they also come with a bigger price tag.

• 

  Deductibles

  Choosing a higher deductible can lower your premium, but you’ll need to cover more out of pocket if you file a claim.

Who needs business interruption insurance?

If your business depends on a physical location, equipment, or vendor networks, and steady cash flow is a necessity to stay afloat, then business interruption insurance may be a smart decision.

Even freelancers or contractors operating from rented space should consider it — especially if closing means lost income and continued bills.

How much business interruption insurance do you need?

Your coverage should be enough to replace your profits and cover operating expenses until you’re fully back in business. Here’s how you can estimate how much you need:

1. Calculate your average monthly net profit plus operating expenses (rent, payroll, and others).

2. Estimate how many months it may take to restore operations.

3. Multiply step 1 by step 2 to get your coverage limit.

For example, let’s say you have $6,000 in monthly profits and $4,000 in monthly expenses, and you want to have a minimum of three months to restore operations.

For this scenario, you’ll multiply the $10,000 in profits and expenses by three months, giving you $30,000 in coverage.

How to buy business interruption insurance

Getting the right business interruption coverage isn’t just about finding the cheapest policy. It’s about making sure your business can bounce back if disaster strikes.

Here’s how to get coverage:

1. Review existing coverage. Many business owners policies (BOPs) already include business interruption insurance, so check what you have before buying extra.

2. Calculate your income and expense needs. Figure out your average monthly profits and operating costs to set realistic coverage limits.

3. Shop for quotes. Use online comparison tools, work with independent agents, or contact insurers directly to see your options.

4. Compare policies carefully. In addition to comparing prices, check if the insurer offers endorsements like contingent coverage, civil authority, or pandemic riders.

5. Check the claims process and reviews. A fast payout and good customer service matter just as much as coverage when your business is on hold.

Tips for saving on business interruption insurance

While maximizing your savings is important, it’s crucial to ensure that you get the right coverage for your needs. As you research your options, here are some tips that can help you get the best offer:

• Compare quotes from multiple insurers to find the best rate.

• Bundle with other business insurance, such as business liability or commercial auto, for discounts.

• Keep accurate financial records to back claims.

• Opt for a higher deductible if you can manage it.

• Choose limits based on your actual risk exposure to avoid overbuying.

• Implement disaster preparedness to reduce risk and rates.

• Choose only the endorsements that your business needs to keep costs in check.

Business interruption insurance FAQs