Business Income Insurance: What It Is, Which Businesses Can Benefit

If your property is damaged and you can't operate your business, this type of insurance can help with expenses.
Lisa AnthonyAug 16, 2021

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Business income insurance, also known as business interruption insurance, helps to cover lost income when a company's physical property is damaged and you’re unable to operate your business because of certain perils covered in the policy.

In an extended shutdown, these policies can provide the financial support needed to pay employees, cover rent and keep the lights on.

is often included in a  along with property and liability insurance. Purchasing this bundle of coverage is generally less expensive than purchasing the policies individually. You may also be able to add an endorsement or rider to a commercial property policy to cover the loss of income that results from property damage.

Business owners who have physical locations that provide products and services, or equipment or other types of property used to generate income, would generally benefit from this type of coverage. For example, the owners of a coffeehouse, barbershop and car rental agency could all experience loss of income if their properties were damaged.

For business income insurance to pay for certain business expenses, the closure of your business must be the result of covered perils identified in your policy. Possible covered perils might include:

Damage caused by the following is not typically covered:

Business income insurance works alongside . For example, a wind event severely damages your store's roof and you are unable to open for nearly a month. The roof repair will be covered by a commercial property insurance policy. The loss of income during the closure could be covered by a business income policy.

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Generally, a policy will help cover lost business income and operating expenses until a business can reopen. Policies vary, but the following are commonly covered:

The lost net income amount is based on the business's financial records. You may be asked to provide sales records, profit and loss statements, tax returns, payroll records and other information to establish the income and expenses.

Your policy will cover specified expenses for a certain number of days or period of restoration. The standard restoration period is 30 days, but it can be extended to 360 days, according to the Insurance Information Institute. It’s common to have a waiting period between the damage to the property and the start of the period of restoration. Policies vary, but it can be anywhere from 24 to 72 hours.

As with many other insurance products, the insurer uses a risk assessment to determine your premium amount. This assessment can depend on a number of factors, such as:

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Although insurance policies vary on terms, coverage and options, you may be able to add the following to expand your coverage for a business interruption:

Also known as contingent business interruption insurance, dependent properties coverage protects against loss of business income that's the result of damaged property you depend on but don’t own. For example, it could provide coverage if your primary supplier’s warehouse is destroyed by a fire and you can’t produce your products as a result. The damage may be to the properties of your suppliers, buyers or providers (for example, the manufacturing location), or to anchor stores, venues or other entities that draw customers to the area.

This type of coverage can be added to help with expenses that would fall outside normal day-to-day operating expenses. This might include renting a temporary business space, equipment leasing, additional payroll expense for overtime or new employees, and other costs not covered under your business income insurance policy.

This endorsement could cover lost income that’s the result of disruptions to basic utility such as electric, gas or water service.

This coverage applies when a local, state or federal government entity restricts access to your premises as a result of damage to a nearby property not owned by you.

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Details are important. Know what’s covered before you buy the policy, not later when you need to file a claim. Carefully review information about the following:

If the policy you’re considering includes a waiting period, get more details about it. Will you be responsible for losses during this 24 to 72 hour period? Or will your insurance cover losses from the first day of the shutdown, after the waiting period has elapsed? If losses will not be covered during the waiting period, you may have the option to shorten it.

If you file a claim and it is denied, keep your documentation. You may be able to appeal the denial, qualify for another form of assistance or take a deduction on your federal tax return.

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