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What Is Business Interruption Insurance?

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on September 12, 2022

Business interruption insurance is a business insurance policy that reimburses you for business income lost due to an unforeseen event that causes physical damage to the business.  Without business interruption insurance, business owners are out of luck if their business is temporarily closed down due to theft, fire, or some other disaster. If your business suffers any kind of loss due to damage, business interruption insurance covers the business income lost during the time it takes to restore operations.  This insurance is something every business owner needs. It’s a misconception that business owners need only property insurance or liability coverage, without business interruption insurance.  Not having business interruption insurance means if your business has to shut down for any length of time, you take a business income loss while the business is down. If your business is closed for weeks or months while you rebuild, you not only lose income during that time, but business interruption insurance does not cover any future business income lost after the restoration of operations.

Business Interruption Insurance Coverage

The types of events business interruption insurance covers vary by policy and business.  For instance, business interruption insurance may cover losses due to business interruption due to business equipment failure or business interruption due to business operation disruption caused by a shutdown of the power grid. The event that causes loss might be something like a fire or flood, or it might be an intentional act such as terrorism.

Why Do You Need Business Interruption Insurance?

The business interruption insurance covers business income lost during the time it takes you to rebuild your business after a property loss.  However, it also does not cover business interruption if the property loss is due to the business owner’s intentional act.  If your business has an income stream and physical assets, business interruption insurance provides coverage that can be indispensable in times of business crisis. Business owners can’t afford to lose business income during this period of time, so without business interruption coverage, they have no way to recover these losses. 

How to Get Business Interruption Insurance?

Business owners should ask business professionals working in business insurance, business finance, and business development for a business interruption insurance quote.  Business interruption insurance is not something to take lightly, so business owners need to get quotes from several different providers. They should also be sure to ask questions about how business interruption claims are paid out.

Who Can Use Business Interruption Insurance?

Business interruption insurance is something business owners need.  Everyone has different business insurance needs, but business interruption coverage is especially useful to business professionals who can’t afford to take a business income loss if their business suffers some kind of damage.

Different Types of Business Interruption Insurance

There are two main types of business interruption insurance policies business owners can purchase. 

Business Income Insurance 

This covers business income loss during the time it takes to rebuild after a property loss. It’s helpful for business owners who can’t afford business income loss during the rebuilding phase and also business owners who want to be covered against business interruption resulting from a business equipment failure.

Business Operating Expense Insurance 

This type of business interruption insurance covers business operating expenses such as rent, utilities, and other business operation costs if business operations need to be suspended for business property damage repairs. It can be a business necessity if the business interruption is caused by business equipment failure or business operation disruption due to a power outage.

Business Revenue Insurance

This insurance compensates business owners for business lost due to theft or any other intentional act by others.  For business owners who want business interruption coverage in case of business equipment failure or business operation disruption due to a power outage, business revenue insurance is available for this type of loss.

Business Interruption Insurance Drawbacks and Benefits 

There are some drawbacks and benefits associated with business interruption insurance: 

Drawbacks

  • It sometimes includes a deductible which business owners must pay out of pocket before business interruption insurance starts
  • If the business interruption is not caused by a business property loss it will not be covered by business interruption insurance

Benefits

  • Can cover business income lost during the business repair time frame, business operating expense loss if business operations are suspended, and business revenue lost due to theft or any other intentional act by others
  • It can make business owners feel better knowing they are protected in case of business equipment failure or business operation disruption due to a power outage
  • If business interruption claims are paid out correctly, business owners don’t need to worry about business income loss during the time it takes them to rebuild their business after a property loss. 
  • It also provides business owners with protecting their business from risks such as business interruption due to any intentional act by business professionals, such as terrorism or sabotage.

Key Takeaways

Business interruption insurance is business coverage that business professionals need to make sure business owners are protected in case of business equipment failure or business operation disruption due to a power outage. To get business interruption insurance quotes business professionals will have to talk with different providers and ask questions about how business interruption claims are paid out.

This insurance is business coverage business professionals purchase to be able to get business income, expenses, and revenue loss repaid if business operations are interrupted.
Business interruption insurance is business protection business professionals can use in case business equipment failure or business operation disruption due to a power outage interrupts business income.
Business interruption insurance is business protection that business professionals can get by speaking with business insurance providers and asking questions about how business interruption claims are paid out.
Anyone who owns a small business or a large company, it is business coverage that applies to everyone in some way to make business property repairs or business equipment replacement easier.
It covers business income loss after a property loss, business operating expenses if business operations are suspended because of damage to business property, and lost business revenue due to business interruption caused by any intentional act.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.