A Guide for Small Business Owners: Business Interruption Insurance
As a business owner, you’ve probably insured your property, your equipment, maybe even your employees. But have you thought about insuring your income?
That’s exactly what Business Interruption Insurance is designed to do—protect your company’s ability to generate revenue when disaster strikes. A fire, a major storm, or even a government-mandated shutdown could bring your operations to a grinding halt. But the bills don’t stop just because your business does. rent, payroll, taxes, and loan payments keep coming. The question is: How will you cover them if your revenue suddenly disappears?
Business Interruption Insurance is coverage that replaces lost income when a covered event forces your business to temporarily shut down.
It’s often bundled with a commercial property policy or a Business Owners Policy (BOP) and helps business owners maintain financial stability during periods of forced closure.
How Business Interruption Claims Are Calculated
Unlike other types of insurance that have a fixed payout, Business Interruption claims are based on your actual financial records and the projected income you would have earned had the loss not occurred.
The insurance company will typically look at:
- Your past revenue and profit history – Your insurer will analyze your financial records to estimate how much income your business was generating before the interruption.
- Ongoing expenses that must still be paid – Fixed costs like rent, utilities, and payroll will be considered.
- Loss of net income – Your policy is designed to replace the profit you would have made if your business had remained operational.
- The length of the disruption – The policy covers losses for a specific time period, known as the restoration period, which starts from the moment of the covered loss and extends until your business is reasonably able to resume normal operations.
What Business Interruption Insurance Covers
- Lost Profits – Pays out the profit your business would have earned during the downtime.
- Fixed Expenses – Covers overhead costs like rent, utilities, and loan payments.
- Payroll – Ensures you can continue paying employees to avoid losing staff.
- Temporary Relocation Costs – Covers expenses if you need to move operations to another location temporarily.
- Extra Expenses – Some policies will cover additional costs incurred to minimize downtime, like expedited shipping fees or renting temporary equipment.
What Business Interruption Insurance Doesn’t Cover
- Property Damage – This is covered under your property insurance, not Business Interruption.
- Utilities & Broken Equipment – Unless the loss is due to a covered peril, damages to equipment or utility outages generally aren’t included.
- Partial Closures – If your business remains open but sees reduced revenue, a claim may not be fully covered.
- Pandemic Shutdowns – Most policies exclude virus-related shutdowns
- Floods & Earthquakes – Unless specifically added, these are typically excluded under standard policies.
How the Claims Process Works
If your business suffers a loss that forces you to shut down, here’s what you need to do:
- File Your Claim Immediately – Contact your insurance provider as soon as possible to start the claims process.
- Provide Financial Documentation – Your insurer will need access to financial records, tax returns, profit & loss statements, and payroll reports to determine lost income.
- Assess the Damage – The insurer will investigate the cause of the business interruption and determine whether the event is covered.
- Work Within the Restoration Period – Your policy will define a specific time period that the insurer considers reasonable for repairs and reopening. If your business remains closed beyond that timeframe, coverage may stop.
- Receive Payment – Once the insurer calculates your losses, they’ll issue a payout to cover lost income and ongoing expenses.
When Does a Business Interruption Claim Pay?
A business interruption claim will pay when:
- A covered peril (like a fire, windstorm, or major accident) physically damages your business premises, making it impossible to operate.
- The shutdown is direct and necessary—you can’t claim just because business is slow.
- The financial loss is properly documented with past revenue statements and profit/loss reports.
A claim won’t pay if:
- The shutdown is due to an excluded event (like a pandemic or flood).
- The business is still operational, even at reduced capacity.
-  The loss isn’t documented well enough to establish lost income.
The Biggest Mistake Business Owners Make
One of the biggest mistakes small business owners make is assuming their policy includes Business Interruption Insurance. If you don’t have Business Interruption Insurance, ask yourself:
- Could I continue paying rent, loans, and payroll if my business shut down tomorrow?
- Can I afford to lose my employees for when business resumes
- How long could I survive without revenue before going out of business?
- Am I relying on hope that nothing will ever disrupt my income?
How Much Business Interruption Insurance Do You Need?
Every business is different, but as a rule of thumb, you should have enough coverage to replace your revenue for at least 6-12 months.
- Assess your revenue trends – How much does your business bring in monthly?
- Consider seasonal fluctuations – Do you have peak seasons that impact earnings?
- Factor in ongoing costs – Rent, payroll, loan payments, and other fixed expenses don’t stop when business does.
If your business can’t survive an extended shutdown without serious financial hardship, Business Interruption Insurance is essential.
