What is Business Interruption Insurance?

When a disaster affects a business, the business’ losses can extend beyond immediate property damage and injuries that are sustained in the disaster. Operations may have to be slowed down or stopped altogether in the aftermath, and with this revenue frequently decreases. Business interruption insurance helps protect businesses from the financial costs of operational slowdowns and stops that are caused by covered disasters.

In offering protection for covered drops in revenue, business interruption insurance is a unique form of insurance. Few other types of policies will provide payments for revenue decreases even if the policies cover damage or injuries sustained during a disaster.

(Since business interruption policies offer payment for covered decreases in revenue, or income, this protection is sometimes referred to as “business income insurance.”)

What Sorts of Disasters Does Business Income Insurance Protect Against?

In general, business income insurance protects businesses from the same sorts of disasters as commercial property policies cover. Exact coverages can vary, but most business interruption policies offer coverage for perils like fire, windstorms, and theft.  

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Importantly, business interruption policies typically aren’t designed to offer coverage for bad decisions. Strategic mistakes and market competition that result in decreased sales usually aren't covered. These policies are meant to help businesses prepare for unexpected and uncontrollable disasters -- not decisions or industry changes that affect profitability.

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What Types of Businesses is Business Income Insurance For?

Any business that would struggle to remain financially viable if there was a temporary decrease in revenue ought to consider getting business income insurance. When a disaster strikes, revenue may come to a halt -- but bills won’t. Even if suppliers and employees are understanding, there will be a limit to how long they’ll wait for payment. Not being able to pay bills for just a short time could force a business to permanently close its doors.

Just a few examples of businesses that may need business income coverage include:

  • Restaurants, which may need coverage beyond when they reopen after a disaster so they can continue paying bills until business picks back up
  • Hotels, which might need coverage for several months while rebuilding after a major disaster
  • Manufacturers, which may have to front the cost of assembling products after a disaster until the products are finished and can be sold

Do Businesses That Have Cash Reserves Need a Business Interruption Policy?

Businesses that have significant savings may want to self-insure against potential decreases in revenue instead of buying a business interruption policy. This obviously helps a business save money since it doesn’t have to pay a policy’s premiums. There is a cost associated with self-insuring, though.

Self-insuring against revenue decreases requires keeping a lot of funds in a readily accessible account. These funds are capital that can’t be used to grow a business, because they must be saved for a potential disaster.

By purchasing a business interruption policy, which itself is usually quite affordable, a business can free up the funds that would otherwise have to be saved. These funds can be invested in upgrading a business’ facilities, purchasing goods at volume for discounts, breaking into new markets, or any number of other purposes. Often, using this money to grow a business is more effective than saving it just in case something happens. Getting a business interruption policy lets a business do this without being exposed to unnecessary risk.

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How Can Businesses Get Business Interruption Insurance?

For help finding business interruption insurance, business owners should contact an independent insurance agent who specializes in commercial insurance. Business income coverage is often available as a stand-alone protection, through a business owner’s policy or as part of a commercial package policy. A knowledgeable independent agent can help determine which of these options is best for a particular business.

Meet Your Industry Specialist

Jeff Kroeger

Principal, Senior Vice President, and Head of Commercial Lines, Mr. Kroeger also manages the company's hospitality book of business and is that unit's primary producer. He is a graduate of Montclair State University and was named a 2015 Young Gun Insurance Business America.

Jeff has been providing exceptional insurance for restaurants, bars, nightclubs, and more for many years. He understands the unique challenges this industry faces and delivers the right coverage at an affordable price.

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