The 2024 Allianz Risk Barometer shows 31% of businesses cite business interruption as their top risk, making this coverage essential for most companies. It replaces lost revenue and covers continuing expenses when covered property damage prevents operations. Business interruption insurance, business income insurance and business income coverage all mean the same thing. You'll add it to commercial property insurance as an endorsement or include it in a business owner's policy (BOP).
Business Interruption Insurance
Business interruption insurance covers lost income when disasters like fires or floods force your business to close temporarily.
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Updated: December 3, 2025
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Key Takeaways
Business interruption insurance covers your lost profits, payroll, rent and loan payments when disasters like fires or floods shut down your business temporarily.
It covers fires and storms, but doesn't protect against cyber attacks or earthquakes unless you have other types of business insurance.
Determine your coverage needs by reviewing monthly expenses, past income, recovery timeline and seasonal patterns.
What Is Business Interruption Insurance?
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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.
- Commercial 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
This 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 forces you to close temporarily. Something has to damage your property first physically. 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 under business interruption insurance. 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 damages your factory roof and equipment. You'll get help replacing lost production income and can rent a 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 in the United States. Your lender might require it for commercial mortgages or business loans, but the real question is whether you can afford to go without it. Most small businesses struggle to pay rent, loans and wages during lengthy closures when revenue stops.
Calculate your coverage needs based on monthly operating costs and realistic recovery time:
- 1Monthly operating expenses
Add up fixed costs like rent, loan payments, payroll and utilities that continue during closures. These expenses don't pause during disasters, so accurate estimates prevent cash flow gaps when you need funds most.
- 2Historical income
Review average monthly revenue over the past 12 to 24 months to estimate potential losses during shutdowns. Many business owners underestimate their monthly income until they face an actual closure.
- 3Recovery timeline
Factor in realistic rebuild or repair timelines for your specific business type. A restaurant might reopen in weeks, while manufacturing facilities could take months. Longer recovery periods require higher coverage amounts.
- 4Seasonal fluctuations
Account for peak earning periods you might miss during extended closures. Disasters during busy seasons cost more than average monthly income; you lose the profitable months that carry you through slower periods.
- 5Extra expenses
Budget for temporary space rental, overtime contractor payments and expedited equipment delivery. These costs add up quickly, but getting back to business faster prevents losing customers to competitors who stayed operational.
Add your monthly fixed costs, then multiply by your estimated recovery timeline. An insurance agent can verify your calculations and recommend appropriate coverage for your business.
Business Interruption Insurance: Bottom Line
Business interruption insurance protects your income when covered disasters like fires or floods shut you down temporarily, but 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 when comparing coverage options. We've addressed the most frequently asked questions below:
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.
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. When you file a claim, your insurer assigns an adjuster to verify damage and calculate income loss. Keep detailed records throughout your closure period.
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!
He writes about economics and insurance, breaking down complex topics so people know what they're buying.
sources
- Allianz. "Allianz Risk Barometer 2024." Accessed August 17, 2025.