What Does Business Interruption Insurance Cover? – Forbes Advisor

Business interruption insurance helps to replace lost business income if you are unable to open your business on a temporary basis due to a loss covered by the policy, such as a fire or theft.

Let’s say a storm knocks a tree into the front window of your business. Business interruption insurance, also known as business income insurance, would cover costs of lost income to your business until the window gets repaired.

Should I Buy Business Interruption Insurance as Part of a Business Owners Policy?

Great for small businesses and affordable, a business owners policy (BOP) bundles general liability insurance, commercial property insurance and business interruption insurance into one policy:

• General liability insurance covers a variety of potential claims against you including bodily injury, property damage, advertising injury, copyright infringement and reputational harm.
• Commercial property insurance protects the physical assets of a business including furniture, computers, supplies, inventory and tools, plus valuable papers and business records.

How affordable is a business owners policy? It costs an average of $53 per month, according to Insureon. A BOP is worth checking out if you have a small or mid-sized business and are interested in buying all three of these coverage types.

Companies with 100 employees or fewer and revenues of up to about $5 million are good candidates for a BOP, according to the Insurance Information Institute.

What Does Business Interruption Insurance Cover?

Business interruption insurance covers the operating expenses for a business due to a problem covered by the policy. The covered perils for business interruption insurance are generally theft, wind, fire, lightning and falling objects.

Those expenses may include:

• The revenue your business would make if it were open for business
• Monthly mortgage, lease and rent payments for the business space
• Loan payments for the business
• Taxes
• Payroll
• Relocation costs if you have to move to a temporary location
• Training costs for employees to learn new equipment

You’ll want to buy workers compensation insurance separately.

How Much Business Interruption Insurance Coverage Do You Need?

Every business interruption policy generally has a coverage limit. This is the maximum amount your insurance company will pay toward a business interruption claim. Choosing a good coverage amount is essential because you’ll have to absorb any financial losses above your coverage limit.

Consider these factors:

• How long would it take to get the business up and running after a disastrous problem like a fire?
• Are the security and fire alarms for your business up to date?
• How much would it cost to rent new office space in your area, and is space readily available?

Look at your gross earnings and earnings projections as guidelines for the right amount of coverage. You want the insurance to cover the costs of operating expenses while repairs are being made to the business.

How Much Does Business Interruption Insurance Cost?

The cost for a business interruption insurance policy is based on a variety of factors such as your industry, the number of employees and the amount of coverage that you choose.

Costs can also vary based on your business location and your risk of making a claim.

A business interruption insurance policy costs between $40 and $130 per month, or $480 and $1,560 per year, according to Insureon.

How Long Does Business Interruption Insurance Coverage Last?

In most cases, there is a 48- to 72-hour waiting period for a business interruption policy to kick after a loss that’s covered by insurance. Look at your policy’s “restoration period,” which is the length of time the policy will pay for covered losses.

A restoration period usually lasts up to 12 months. So if your business was damaged on April 1, you would be entitled to business interruption benefits until April 1 of the following year. The restoration period begins with 30 days and then gets extended as needed up to a year.

What’s Not Covered by Business Interruption Insurance

There are plenty of exclusions to a business interruption insurance policy, such as:

• Damage from a flood or earthquake. Both require separate insurance policies
• Undocumented income that’s not listed in your financial records
• Utilities—because they are usually shut off when a business is under repair
• Communicable diseases that caused a shut down of your business
• Damaged property, which would be covered under commercial property insurance

Does Business Interruption Insurance Cover Covid-19?

The question of whether business interruption insurance should cover losses due to the pandemic has been a contentious issue. The insurance industry maintains that there is generally no business interruption coverage for pandemics, but many businesses have been pursuing arguments in court that their losses should be covered.

The University of Pennsylvania Carey Law School’s Covid Coverage Litigation Tracker has counted more than 1,700 lawsuits over business insurance coverage for Covid, with many lawsuits coming from businesses in the food services industry.

“Business interruption insurance only provides potential coverage when there is direct physical loss or damage,” says Robert Gordon, senior vice president of policy, research and international for the American Property Casualty Insurance Association. “Pandemics do not cause direct physical loss or damage and are a largely uninsurable risk.”

“Most business losses following the spread of Covid-19 have been the result of a plunge in demand for in-person commercial services, which does not involve physical loss or damage to property,” he says.

Also, business interruption insurance policies may have exclusions for communicable diseases.

“Most property/business interruption insurance policies include exclusions for communicable diseases and additionally require actual physical loss of or damage to property as part of the coverage trigger,” Gordon says. “Even before Covid-19, insurance coverage for pandemics was only available in very limited circumstances, such as for event cancellation coverage. Business interruption insurance does not generally include coverage for pandemics.”

Neil Alldredge, senior vice president of corporate affairs for National Association of Mutual Insurance Companies, says, “Before the pandemic, most business interruption policies did not cover infectious disease or pandemic related losses, and while there are thousands of pending lawsuits on the question of coverage, most believe that policy language was clear. Already, several lawsuits have been resolved in favor of insurers, and we expect that insurers will continue to prevail in the courts.”

“Going forward, many insurers will likely examine their coverage terms and clarify coverage if necessary. The fact is pandemic losses, as we’ve seen, occur at such a scale, they are simply not an insurable event,” says Alldredge.