Most business owners think about insurance in terms of protecting physical assets—the building, the equipment, the inventory. But what about the income your business generates? If a fire, storm, or other covered event forced your doors to close for weeks or months, how would your business survive without revenue coming in?
That is the problem business interruption insurance—also called business income insurance—is designed to help address. For many small business owners, this coverage can be a critical part of a well-rounded commercial insurance plan.
What Is Business Interruption Insurance?
Business interruption insurance is not typically sold as a standalone policy. It is usually added as part of a commercial property policy or business owners policy (BOP). It is designed to replace lost income and help cover ongoing expenses when a covered peril—such as a fire, windstorm, or vandalism—forces a business to suspend operations temporarily.
What It Typically Covers
When a covered loss causes a business to close, business interruption insurance can help with several types of costs:
- Lost revenue refers to the income your business would have earned during the period of restoration. This is typically calculated based on your financial records.
- Fixed operating expenses continue even when your business is not generating income. Rent, loan payments, and certain payroll costs may be covered during a shutdown.
- Extra expenses are additional costs incurred to keep the business running during the disruption—for example, renting temporary space or equipment.
It is important to note that business interruption insurance generally only applies to closures caused by covered perils. It does not apply to losses caused by floods or earthquakes unless those are covered separately.
The Waiting Period and Period of Restoration
Most business interruption policies include a waiting period—often 48 to 72 hours—before coverage kicks in. The period of restoration refers to the timeframe the insurer recognizes for rebuilding or repairing, which affects how long benefits are paid.
Understanding these details is important when reviewing any policy, as the specifics can vary by insurer and policy type.
Why August Is a Good Time to Review
Late summer can bring severe weather, and it is also a natural checkpoint for businesses to review their overall financial exposure heading into the fourth quarter. Taking time now to understand whether your business income is protected can make a significant difference if an unexpected event occurs.
Advocate Insurance Group can help you review your current commercial insurance and explore whether business interruption coverage is part of your plan. Call (304) 596-2429 or visit our website to request a quote.