What is business interruption insurance?

By Allstate

Last updated: December 2023

Business interruption insurance plays a crucial role in replacing lost income and coveringr extra expenses when a business is affected by a covered peril. Business interruption coverage (sometimes called business income coverage), often included as part of a business owners insurance policy, aids in helping your business recover after a loss.

you can count on a local agent

An Allstate agent can answer coverage questions and help you find ways to protect what matters most.

By clicking ‘get a quote’ you will be leaving Allstate and be directed to the Insureon website*

What does business interruption insurance cover?

Business interruption insurance is designed to help protect against income loss when a covered peril impacts a business. These perils typically include theft, fire, wind, falling objects or lightning. Be sure to read your business insurance policy documents to understand exactly what situations your insurer helps you cover and what kind of events your policy protects your business from.

Imagine if a fire damages your business, leaving the building uninhabitable and destroying merchandise just before it was about to ship to customers. Business interruption coverage may assist you in two ways:

  1. Reimbursement for lost income arising from the destroyed merchandise (minus expenses already paid, such as shipping).
  2. Coverage for extra expenses incurred if you must temporarily relocate your business due to the fire such as, the cost of rent at the temporary location).

Keep in mind that, while the property coverage in your business owners policy caters to repairing the damaged building (if owned) and replacing contents and equipment, these repairs aren't covered under business interruption coverage.

How much coverage do I need?

Business interruption insurance typically has a coverage limit. A limit is the maximum amount your insurer will pay toward a covered claim. Choosing suitable coverage limits appropriate for your business is essential, as financial losses exceeding these limits typically become the responsibility of the business owner.

Here are a few things considerations when determining the amount of business interruption coverage for your business:

  • About how long would it take to get your business back up and running after a loss?
  • If you rent your office space, how well protected is the building?
  • Are the fire alarms and sprinkler systems in the building up-to-date and functional?
  • Is comparable commercial space readily available in your area, or would it take weeks to find a suitable temporary location?

Business interruption and restoration period

Your business interruption coverage likely outlines a "restoration period." This is the length of time that your policy will help pay for lost income and extra expenses during business restoration after a covered claim. It's important to read your policy documents which details the start and duration of this restoration period.

Typically, a 48- to 72-hour waiting period precedes the restoration period, but it typically lasts up to 12 months (this time period usually can't be extended by the policy holder). That means if your business was damaged on October 1, you'd receive business interruption coverage benefits until October 1 of the following year — even if your policy expires before then. For example, your policy might end because your business was heavily damaged and you may not have a business to insure. If your business's building repairs are not completed before the 12-month restoration period ends, your business interruption coverage would expire. This means you'd stop receiving reimbursement for things like lost income.

Ensuring timely repairs is also essential to maintain eligibility for reimbursement. If you don't, it could create potential issues with loss of income payments.

Reducing business losses after an interruption

When a business is damaged in certain situations, immediate repairs can help prevent further losses. For example, a strong storm rolls through and high winds caused a few windows to break. An insurance company will typically expect a business owner to board up any broken windows to help keep the premises secure and prevent further damage.

Many insurers will reimburse business owners for some of the repairs they may need to make right away. Documenting damage through photographs or videos and retaining receipts for repairs made will help assist when seeking reimbursement for these types of immediate repair expenses.

Understanding how business interruption coverage helps protect your business can help you be more prepared in case of an incident or if you need to file a claim. Have questions, or want to make sure your business insurance policy is keeping up with your needs? Talk to your insurance provider today.