Business Income Insurance: What It Is and How It Works

By Mark Fitzpatrick

Updated: August 27, 2025

Advertising & Editorial Disclosure

Key Takeaways

Business income insurance replaces lost revenue when covered property damage forces your business to close.

It covers continuing expenses and lost profits but won't cover floods or COVID-style shutdowns.

Your monthly operating expenses and recovery timeframe determine how much business interruption coverage you need.

What is Business Income Insurance?

Business income insurance replaces lost revenue when covered property damage forces your business to close. While commercial property insurance covers physical damage to your property, business income insurance (sometimes called business interruption insurance) covers your ongoing expenses like rent, payroll and loan payments during the closure.

Small businesses often get complete protection through a business owner's policy (BOP) that combines property, liability and business income coverage. Larger businesses typically add business income coverage as an endorsement to their standalone commercial property policy.

What Does Business Income Insurance Cover?

Your coverage depends on whether the property damage stems from a covered peril (events your policy protects against) in your commercial property policy. Business interruption usually doesn't cover damages or losses from flooding, earthquakes and mudslides, though you can purchase additional protection for these specific perils.

The following scenarios show when you're protected and when you aren't:


Fire damages your restaurant's kitchen.	✅	A grease fire forces Tony's Pizzeria to close for three months during kitchen reconstruction. Business income insurance covers lost revenue, employee wages and continuing expenses like rent and loan payments since fire damage is covered.
Windstorm damages your retail store's roof.	✅	Hurricane winds tear off part of Sarah's boutique roof, forcing closure for repairs. Coverage applies because windstorm damage is typically covered under commercial property policies, triggering business income protection for lost sales and ongoing operating costs.
Flooding shuts down your manufacturing plant.	❌	When river flooding forces Martinez Manufacturing to evacuate, standard business income insurance won't cover lost production time. Your policy doesn't cover damages or losses from flooding, but separate flood insurance may include business interruption coverage.
Civil authority blocks access after nearby explosion.	✅	After a gas explosion damages buildings on Main Street, authorities cordon off the area for two weeks. Emma's Coffee Shop, though undamaged, qualifies for civil authority coverage because the triggering event (explosion) is covered, and government orders prevent access to her property.
Vandalism forces temporary closure.	✅	Vandals break windows and damage inventory at Johnson's Electronics, requiring a week-long closure for cleanup and restocking. Since commercial property policies cover vandalism, business income insurance covers lost sales during restoration.
Cyber attack shuts down operations.	❌	A ransomware attack paralyzes Digital Solutions Inc.'s computer systems for five days. Traditional business income insurance requires physical property damage, so cyber-related closures typically aren't covered unless you have separate cyber liability insurance with business interruption coverage.
Power outage from equipment failure.	✅	An electrical transformer explosion cuts power to Industrial Park for 48 hours, forcing Metro Welding to halt production. If the power loss results from covered property damage to utility equipment, business income coverage may apply through utility services endorsements.

Disclaimer

Coverage details vary between insurers and states. Review your specific policy or talk with your insurance agent to understand what's covered in your situation.

How Much Business Income Insurance Do I Need?

Business income coverage replaces lost revenue when property damage forces closure. It also covers ongoing expenses like rent and payroll while your business is shut down. How much coverage you need depends on these factors:

1
Monthly operating expenses
Calculate your fixed costs like rent, loan payments, payroll, utilities and insurance premiums that continue even when you're closed.
2
Average monthly revenue
Review your financial records to determine typical monthly income, accounting for seasonal fluctuations in your business.
3
Recovery timeframe
Estimate how long it would take to repair, rebuild or replace damaged property and resume normal operations.
4
Industry-specific risks
Consider perils common to your sector. For example, restaurants face fire risks, coastal businesses deal with hurricanes and manufacturers worry about equipment breakdowns.
5
Location factors
Think about what kind of accidents, natural disasters or lawsuits could damage your business, especially if you're in areas prone to seasonal events like floods or wildfires.
6
Seasonal revenue patterns
Account for peak and slow periods when determining annual coverage needs, as a closure during busy season costs more than during off-peak periods.
7
Alternative income sources
Factor in whether you can operate from temporary locations or generate revenue through other means during restoration.

Who Needs Business Income Insurance?

While any business could benefit from protection against income loss, some face higher risks and need this coverage more than others. Different business types have varying vulnerabilities and recovery challenges:

Restaurants and food service

Kitchen fires, equipment failures and health department closures can shut down operations for weeks or months.

Retail stores with physical locations

These businesses can't generate revenue when customers can't enter due to property damage or civil authority orders.

Manufacturing companies

Equipment breakdowns or facility damage halt production, affecting immediate sales and supply chain obligations.

Seasonal businesses

Companies that generate most revenue during specific periods face catastrophic losses if disasters strike during peak seasons.

Businesses in high-risk areas

Locations prone to natural disasters like hurricanes, floods or wildfires face frequent closure threats.

Equipment-dependent operations

Medical practices, auto repair shops and printing companies rely on specialized equipment that's expensive and time-consuming to replace.

Single-location businesses

Companies without multiple locations can't redirect operations elsewhere when their primary facility is damaged.

Business Income Protection Insurance: Bottom Line

Business income insurance keeps your company financially stable during unexpected closures. While it covers lost revenue and continuing expenses from covered perils like fire or windstorms, floods and viruses require separate policies. Determine your coverage needs by calculating monthly expenses and estimating realistic recovery timeframes.

Business Income Insurance Coverage: FAQ

We've answered the most frequently asked questions about business income insurance to help you understand this essential coverage:

How much does business income insurance cost?

Costs vary based on factors like your monthly expenses, rebuild time and industry risks. Insurers calculate premiums using your annual revenue and the fixed costs you'd still pay during closure.

What's the difference between business income insurance and business interruption insurance?

Same coverage, different names. Both replace lost revenue and cover ongoing expenses when property damage forces your business to close temporarily.

What documentation do I need for a business income insurance claim?

Gather your financial records showing normal earnings, receipts for expenses you're still paying while closed, proof that the damage caused your shutdown and records of any income earned during closure.

Do online businesses need business income insurance?

Only if you rely heavily on physical servers, equipment or office space. Cyber attacks aren't typically covered, so you'd need separate cyber insurance for that.

Is business income insurance required by law?

No law requires it, but lenders or landlords often make it a loan or lease requirement. This optional coverage protects your finances when covered damage forces closure.

How do I calculate how much business income insurance I need?

Add your monthly expenses to your typical monthly income, then multiply by rebuild time. Factor in busy seasons and whether you could temporarily operate from another location.

What happens if my business can operate from a temporary location?

The insurance covers extra costs like temporary rent and equipment while reducing lost income payments based on what you earn at the temporary location.

About Mark Fitzpatrick

Mark Fitzpatrick, a Licensed Property and Casualty Insurance Producer, is MoneyGeek's resident Personal Finance Expert. With over five years of experience analyzing the insurance market, he conducts original research and creates tailored content for all types of buyers. His insights have been featured in publications like CNBC, NBC News and Mashable.

Fitzpatrick holds a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He's also a five-time Jeopardy champion!

Passionate about economics and insurance, he aims to promote transparency in financial topics and empower others to make confident money decisions.

Read Full Bio »

Business Income Insurance