Business Interruption Insurance: What It Is and How It Works (2025)

Key Takeaways

Business interruption insurance covers lost income when disasters like fires or floods force your business to close temporarily.

It covers fires and storms, but doesn't protect against cyber attacks or earthquakes unless you have other business coverage.

Determine your coverage needs by reviewing monthly expenses, past income, recovery timeline and seasonal patterns.

What is Business Interruption Insurance?

According to the 2024 Allianz Risk Barometer, 31% of businesses cite business interruption as their top risk. This is exactly why you need business interruption insurance.

It replaces lost income when covered property damage prevents operations. This coverage pays for your lost revenue and continuing expenses during shutdowns, keeping your business financially stable while you rebuild.

This coverage goes by different names. Business interruption insurance, business income insurance and business income coverage all describe the same protection. When shopping for this coverage, you can't buy it standalone. You'll have to add it as an endorsement to commercial property insurance or include it in a business owner's policy (BOP).

COMPLETE YOUR BUSINESS PROTECTION

Business interruption insurance is just one type of financial protection. It handles lost income when you can't operate, but you'll want other coverage for different situations:

General liability insurance covers lawsuits when you accidentally damage someone else's property or customers get hurt on your property.
Workers' comp insurance handles employee injuries and is required in most states.
Business property insurance repairs or replaces your building, equipment and inventory after covered damage.
Tools and equipment insurance protects specialized tools, machinery and mobile equipment that standard property policies might not fully cover.
Professional liability (E&O) insurance protects you when clients claim you made mistakes, gave bad advice or didn't deliver what you promised.
Cyber liability insurance helps if hackers steal customer data or shut down your computer systems.

Business Interruption Insurance: Key Terms

When you're shopping for business interruption insurance, you'll encounter terms that sound confusing but make a big difference in what you pay and what you receive.

Waiting period

You'll wait 48 to 72 hours after property damage before coverage starts paying out. Think of this as a filter that keeps minor disruptions like brief power outages from triggering claims, helping keep your premiums reasonable.

Period of restoration

This determines how long you'll receive benefits, usually until repairs wrap up and your income returns to normal. Since major rebuilds can take months, make sure this timeframe makes sense for your type of business.

Business income

Here's where it gets tricky. It's not just your sales revenue, but your profit plus those expenses that don't stop when you're closed, like rent and payroll. Getting this number right means you won't be short on cash during downtime.

Extra expense coverage

This pays for the additional costs you need to keep operating, like renting a temporary space or expediting equipment orders. It's often the difference between keeping customers while you rebuild versus watching them move to competitors.

What Does Business Interruption Insurance Cover?

Business interruption insurance covers lost income when property damage limits your operations or, worse, forces you to close temporarily. The important thing to remember is that something has to physically damage your property first. Knowing what qualifies can help you avoid claim denials down the road.


A kitchen fire forces your restaurant to close	✅	You can't serve customers while you're dealing with fire damage. You'll get paid for lost revenue plus those ongoing expenses like rent and payroll that don't stop.
The government orders a COVID-19 shutdown	❌	Most policies won't cover this since they exclude communicable diseases (pandemics and similar widespread health events aren't covered). You'd need pandemic coverage or a civil authority add-on that specifically covers virus shutdowns.
A burst pipe floods your retail store	✅	Water damage shuts down your clothing store for two weeks. You're covered for lost sales and employee wages while you clean up and get new inventory.
A cyber attack shuts down your operations	❌	No physical damage means no coverage here. You'll want cyber liability insurance instead since it covers lost income from digital attacks and data breaches.
A tornado damages your manufacturing facility	✅	A storm trashes your factory roof and equipment. You'll get help replacing lost production income and can even rent temporary workspace if needed.
An earthquake cracks your building foundation	❌	Standard policies don't cover earthquakes. You'll need separate earthquake insurance that includes business interruption if you're in a quake zone.
Vandalism breaks your storefront windows	✅	Broken glass forces you to close while repairs happen. You're covered for lost income during downtime and any extra security costs.
A power outage lasts three days	❌	No property damage means no coverage. Some insurers offer utility interruption add-ons if extended power outages are a real concern for your business.

How Much Business Interruption Insurance Do I Need?

Business interruption insurance isn't legally required anywhere in the United States. Your lender might require it if you have a commercial mortgage or business loan, but the real question is whether you can afford to go without it. Most small businesses struggle to pay rent, loans, and wages during a lengthy closure when money isn't coming in.

To figure out how much coverage makes sense, think about:

1
Monthly operating expenses.
Add up fixed costs like rent, loan payments, payroll and utilities that continue even when you're closed. These expenses don't pause during a disaster, so underestimating them leaves you scrambling for cash when you need it most.
2
Historical income.
To estimate potential losses, look at your average monthly revenue over the past 12 to 24 months. That'll help you understand what you're risking if you can't operate, especially since many business owners underestimate their monthly income.
3
Recovery timeline.
Consider how long it would realistically take to rebuild or repair your specific type of business. A restaurant might reopen in weeks, but a manufacturing facility could take months. The longer your recovery, the more coverage you'll need to stay afloat.
4
Seasonal fluctuations.
Account for peak earning periods that you might miss during extended closures. If disaster strikes during your busy season, you're not just losing average income. You're losing your most profitable months that often carry you through slower periods.
5
Extra expenses.
Think about costs for renting temporary space, paying contractors to work overtime or getting equipment delivered faster than usual. You might spend thousands more than normal, but getting back in business quickly prevents losing customers to competitors who stayed open.

Coverage amounts depend on your monthly expenses and recovery timeline. Add up fixed costs like rent and payroll, then multiply by how long you'd realistically need to rebuild. An insurance agent can help you run the numbers and find the right coverage for your business.

Business Insurance Interruption: Bottom Line

Business interruption insurance protects your income when covered disasters like fires or floods shut you down temporarily. However, it doesn't cover every type of disruption, such as cyber attacks and earthquakes. Review your monthly expenses, income history, recovery timeline and seasonal patterns to determine the right coverage for your business.

Business Interruption Insurance Coverage: FAQ

Business interruption insurance raises many questions for small business owners comparing coverage options. We've addressed the most frequently asked questions about it:

How much does business interruption insurance cost?

Small businesses typically pay several hundred to several thousand dollars annually, depending on industry and size. Premiums usually represent a small percentage of your annual revenue. Higher-risk businesses like restaurants pay more, while service companies often pay less. The cost makes sense when you can't survive months without income.

Are business income insurance, business interruption insurance and loss of income insurance the same thing?

Yes, they're identical coverage with different names. Insurance companies use "business income," "business interruption," and "loss of income insurance" interchangeably. Your policy documents will likely say "business income," but agents often use "business interruption" since it's clearer. Focus on coverage details, not terminology.

How do I file a business interruption insurance claim?

Contact your insurer immediately after property damage occurs to report both physical damage and potential closure. Document everything: photograph damage, save receipts, track lost revenue. Your insurer assigns an adjuster to verify damage and calculate income loss. Keep detailed records throughout your closure period.

Does business interruption insurance cover cyber attacks?

No, cyber attacks disrupt digital operations without damaging physical property. Standard business interruption requires actual property damage to trigger coverage. You'll want cyber liability insurance instead for digital breaches and system failures. Some companies now bundle cyber protection with traditional property policies. Worth considering if your business depends on computers and online systems.

Is business interruption insurance worth it for small businesses?

Usually yes, since most small businesses can't survive months without revenue while still paying rent and wages. Annual premiums are affordable compared to the coverage you'll get. Skip it only if you operate entirely online or have substantial cash reserves covering a few months of expenses.

What expenses does business interruption insurance cover?

Two main categories: continuing expenses and extra expenses. Continuing expenses (rent, loans, key wages, utilities) don't stop when you close. Extra expenses help you reopen faster, like temporary workspace, overtime fees and expedited deliveries.

How long does business interruption insurance last?

Coverage continues through your 'period of restoration' or however long repairs take and income normalizes. Policy coverage periods vary by insurer and your specific needs. Benefits start after your waiting period and continue until you're fully operational or reach your coverage limits.

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.

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sources

Allianz. "Allianz Risk Barometer 2024." Accessed July 24, 2025.

Business Interruption Insurance