Business Interruption Insurance
Keep your business financially stable when disaster forces you to close— covering lost income and continuing expenses until you're back in operation.
Protect Your Business Income
Don't let a temporary closure become a permanent one. Get income protection today.
Property Insurance Alone Isn't Enough
Commercial property insurance covers your building and equipment—but what about the income you lose while they're being repaired? According to industry research, over 40% of businesses never reopen after a major disaster. Many of these closures occur because the business couldn't survive the loss of income during the recovery period. Business interruption insurance bridges this gap.
What Is Business Interruption Insurance?
Business interruption insurance (also called business income coverage) protects your company's bottom line when a covered property loss forces you to temporarily close or reduce operations. It replaces the income you would have earned and helps pay ongoing expenses that continue even when you can't operate.
This coverage is typically bundled with commercial property insurance or included in a Business Owner's Policy (BOP). It's not sold as a standalone policy because it requires a triggering property loss— there must be direct physical damage to insured property from a covered peril.
The coverage begins after a waiting period (typically 72 hours) and continues through the "period of restoration"—the time it takes to repair or replace your damaged property and resume normal operations.
What It Replaces
- •Lost net profits
- •Employee payroll
- •Rent or mortgage payments
- •Loan payments
- •Taxes
- •Utility costs
- •Relocation expenses
How Business Interruption Coverage Works
Understanding the key components of business interruption coverage helps ensure you have adequate protection:
1. Triggering Event
Coverage is triggered when you suffer direct physical damage to insured property from a covered peril (fire, storm, vandalism, etc.). The damage must cause a necessary suspension of your operations. Importantly, the property that's damaged doesn't have to be your own—damage to rented premises also triggers coverage.
2. Waiting Period (Time Deductible)
Most policies have a waiting period (commonly 72 hours) before coverage begins. Income lost during this period is not covered. This acts as a time deductible, eliminating small claims. Some policies offer shorter waiting periods (24 hours) for higher premiums.
3. Period of Restoration
This is the time during which coverage applies—beginning after the waiting period and ending when property could reasonably be repaired, rebuilt, or replaced with reasonable speed and similar quality. Note: it's based on how quickly you could restore operations, not necessarily when you actually do. Extended period options are available.
4. Coinsurance Requirement
Like property insurance, business interruption coverage typically has a coinsurance clause requiring you to insure a percentage (50%, 80%, or 100%) of your annual business income. Underinsuring can result in penalty reductions on claims. Monthly limitation endorsements can help manage exposure.
What's Covered—and Common Exclusions
Typically Covered
- Lost Net Income
The profits you would have earned during the shutdown period.
- Continuing Operating Expenses
Rent, utilities, loan payments, and other expenses that continue regardless of revenue.
- Payroll Expenses
Wages for key employees you need to retain during the shutdown.
- Extra Expenses
Additional costs to minimize the shutdown (temporary location, overtime, equipment rental).
- Civil Authority Coverage
Lost income when authorities prohibit access due to damage to nearby property.
- Relocation Costs
Expenses to move to a temporary location while your property is repaired.
Common Exclusions
- No Physical Damage
Losses without direct physical property damage (pandemics, loss of key customers).
- Flood & Earthquake
Unless underlying property policy covers these perils, BI won't cover resulting income loss.
- Virus/Pandemic
Most policies exclude losses from communicable diseases or virus contamination.
- Utility Service Interruption
Loss of power/water from off-premises damage (unless utility endorsement purchased).
- Waiting Period Losses
Income lost during the initial waiting period (typically first 72 hours).
- Losses Exceeding Coverage Period
Income lost after the policy's maximum period of restoration ends.
Calculate Your Business Income Needs
Our team can help you determine the right amount of coverage based on your revenue, expenses, and restoration timeline.
Important Coverage Extensions
Standard business interruption coverage can be enhanced with these important extensions:
Extended Business Income
Extends coverage beyond the period of restoration to account for the time it takes to rebuild your customer base and return to pre-loss revenue levels. Typically provides 30-60 days of additional coverage.
Contingent Business Interruption
Covers your income loss when property damage occurs to a supplier or customer that disrupts your operations. Critical for businesses dependent on key vendors or major customers.
Civil Authority Coverage
Covers income loss when government authorities prohibit access to your property due to damage to nearby property. Common triggers include fires or structural damage to neighboring buildings.
Service Interruption (Utility)
Covers income loss from interruption of utility services (power, water, communications) due to damage at the utility provider's premises, not just at your location.
Ordinance or Law Coverage
Covers additional income loss from extended restoration time when repairs must meet current building codes (which may take longer than simple repair to previous condition).
Extra Expense Only
For businesses that must continue operations at all costs (newspapers, dairies, healthcare), this covers extraordinary expenses incurred to avoid suspension, even if those expenses exceed the saved income loss.
Calculating Your Business Interruption Needs
Proper coverage amount is crucial—too little and you'll face a coinsurance penalty; too much and you're paying unnecessary premiums.
Basic Calculation Formula
Business Income = Net Profit + Continuing Operating Expenses
Example Calculation:
- Annual Revenue: $1,000,000
- Minus: Variable costs that stop when you close (inventory, some labor): -$400,000
- Equals: Business Income to insure: $600,000
Multiply by the expected restoration period (e.g., 12 months at 100%, or 6 months at 50% capacity = 9 months equivalent).
Factors to Consider
- •How long could repairs realistically take?
- •Do you have seasonal revenue fluctuations?
- •Could you operate from a temporary location?
- •How quickly could customers be recovered?
- •Are there local building code requirements?
- •What expenses continue vs. stop during closure?
Common Mistakes to Avoid
- ✗Using revenue instead of net profit + expenses
- ✗Underestimating restoration time
- ✗Forgetting about ordinance/code upgrades
- ✗Ignoring extended business income needs
- ✗Not updating values as business grows
- ✗Overlooking supply chain dependencies
Understanding Business Interruption Costs
Business interruption coverage is typically added to commercial property insurance or a BOP:
Typical Premium Impact
| Business Type | BI Coverage Addition |
|---|---|
| Small retail/office | 10-15% of property premium |
| Restaurant | 15-20% of property premium |
| Manufacturing | 15-25% of property premium |
| High-risk/long restoration | 20-30%+ of property premium |
*Exact costs depend on coverage limits, waiting period, restoration period, industry, and coverage extensions selected.
Factors That Increase Premiums
- ↑Higher business income limits
- ↑Shorter waiting periods
- ↑Extended period of restoration
- ↑Contingent BI coverage
- ↑High-risk industries (restaurants, manufacturers)
Ways to Manage Costs
- ↓Longer waiting periods (if you can self-insure early losses)
- ↓Monthly limitation endorsements
- ↓Accurate (not inflated) coverage calculations
- ↓Business continuity planning (reduces restoration time)
- ↓Bundling in BOP vs. standalone policy
Frequently Asked Questions About Business Interruption Insurance
What does business interruption insurance cover?
Business interruption insurance covers lost income and continuing operating expenses when your business cannot operate due to covered property damage. This includes lost net profits, payroll for key employees, rent/mortgage payments, loan payments, taxes, and extra expenses incurred to resume operations more quickly.
How much does business interruption insurance cost?
Business interruption insurance is typically sold as part of a commercial property policy or Business Owner's Policy (BOP). It generally adds 10-20% to your property insurance premium. Annual costs range from several hundred dollars for small businesses to thousands for larger operations with significant revenue.
Is business interruption insurance the same as business income coverage?
Yes, these terms are often used interchangeably. Business income coverage is the ISO (Insurance Services Office) standard form name for what is commonly called business interruption insurance. Both refer to coverage for lost income due to covered property damage.
What is the waiting period for business interruption claims?
Most business interruption policies have a waiting period (often 72 hours) before coverage begins. This acts like a time deductible— income lost during the waiting period is not covered. Some policies allow shorter waiting periods for higher premiums.
Does business interruption cover pandemic closures?
Traditional business interruption insurance requires direct physical damage to property to trigger coverage. Most standard policies do not cover losses from pandemics, government-ordered closures without property damage, or communicable disease. Some policies have virus exclusions. Specialized pandemic coverage may be available.
What is the period of restoration?
The period of restoration is the time during which business interruption coverage applies. It begins after the waiting period and continues until your business could reasonably resume normal operations with reasonable speed. It's not unlimited—there are typically 12-month limits, though extended coverage is available.
Related Business Coverage
Business interruption insurance works hand-in-hand with these complementary coverages:
Commercial Property
The foundation—BI coverage requires underlying property coverage.
Business Owner's Policy
Bundled package including property, liability, and business income.
Cyber Liability
Covers business interruption from cyber attacks (separate from property BI).
Flood Insurance
Essential for BI coverage from flood—standard property excludes flood.
Important Information
This information is provided for educational purposes only and does not constitute legal or insurance advice. Business income calculations and coverage needs vary significantly by business. Coverage features, exclusions, and availability may vary by state and insurance carrier.
All coverage is subject to policy terms, conditions, and exclusions. Please review your policy carefully and consult with a licensed insurance professional to determine appropriate coverage for your specific situation.
The Steele Agency is licensed to conduct business in New York State. License information available upon request or at the New York Department of Financial Services website.
Protect Your Business Income Today
Don't let a temporary closure become permanent. Get the business interruption coverage you need with expert guidance from Steele Agency.
Our Business Interruption Services Include:
- ✓ Business income calculation assistance
- ✓ Coverage comparison from multiple carriers
- ✓ Coverage extension recommendations
- ✓ Claims support during your most difficult times
- ✓ Annual reviews as your business grows
Serving New York businesses since 1969 • Free quotes • Expert guidance
