How Does Business Interruption Insurance Work?

Business interruption insurance, or business income insurance, protects businesses from financial losses resulting from unexpected disruptions to their regular operations. Various incidents, such as natural disasters, fires, theft, equipment breakdowns or other covered perils, could cause these disruptions.

The primary purpose of business interruption insurance is to help businesses recover their lost income and cover ongoing expenses when their operations are suspended or severely impacted due to a covered event. It aims to mitigate the financial strain a business could experience when it cannot generate revenue due to circumstances beyond its control.

What Does Business Interruption Insurance Include?
Key features of business interruption insurance typically include:

• Loss of income—The policy may help cover the loss of income a business would have earned if the interruption hadn’t occurred. This includes profits that would have been made during the period of disruption.
• Ongoing expenses—The policy may help cover ongoing fixed expenses, such as rent, utilities, salaries, and loan payments, that a business would continue to incur even when operations are suspended.
• Extra expenses—Some policies help cover additional expenses a business might incur to continue operating or to expedite the recovery process, such as renting temporary space, leasing equipment, or additional advertising to attract customers back after the interruption.
• Coverage period—The policy specifies the maximum period for which the coverage is applicable. This could be a set number of days or months, depending on the policy terms.
• Waiting period—There’s often a waiting or deductible period before the coverage kicks in. This is the initial period during which the business needs to bear the losses on its own before the insurance coverage starts.

The coverage afforded under a business interruption policy is often closely tied to the perils covered by a commercial property insurance policy, which means that the interruption needs to be a direct result of a covered event.

Business interruption insurance can be crucial in helping businesses manage unexpected challenges and resume operations more smoothly following a disruption. It’s recommended that business owners carefully review their insurance policies, understand the coverage terms and limits and work with an insurance provider to get coverage for their specific needs and potential risks. Contact Silicon Valley Risk & Insurance Services today to discuss your business insurance needs.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.