What Does Business Interruption Insurance Cover?

Whether it’s a hurricane, forest fire, COVID-19 or civil unrest, U.S. businesses have experienced extended periods of interruption the last few years. Business Interruption (BI) insurance is designed to help organizations sustain operations through these interruptions.

But what does business interruption insurance cover?

Before answering that question, it’s essential to know that BI insurance is not a stand-alone coverage. Instead, it’s an add-on to a business’ property policy, covering losses to property that prevent businesses from operating as usual.

For instance, if a hurricane damages an office building or civil unrest causes major damage to a retail store forces them to close, business interruption insurance covers expenses.

BI insurance will reimburse your business for the following:

• Mortgage, rent and lease payments
• Lost revenues
• Employee payroll
• Taxes
• Relocation costs

Does Business Interruption insurance cover pandemics?

No — Business Interruption insurance does not cover a pandemic. Instead, BI coverage requires a physical loss or damage to property to trigger coverage. In fact, most BI policies contain a pandemic and virus exclusion.

This BI coverage exclusion has been challenged legally since the coronavirus pandemic began, but with few exceptions, COVID-19 has not been classified as a physical loss. Businesses with BI coverage that suffered losses during the pandemic cannot expect recoup their rent or lost revenue.

What is Contingent Business Interruption coverage?

Contingent Business Interruption covers businesses for supply chain losses. This type of coverage is important for businesses that rely on supply chains to produce a product or service.

Contingent BI covers interruptions to supply chains that prevents businesses from production or services delivery. Just like traditional BI coverage supplements property coverage, a Contingent BI policy is a supplemental coverage to a BI policy.

How much Business Interruption Insurance coverage does your business need?

As a rule of thumb, if your BI costs exceed your policy’s coverage limit, you’ll have to pay the difference out of pocket. To prevent this, take your business’ gross earnings and projections for the next several years to estimate future profits and determine the right amount of coverage.

Ask the following questions when determining the right amount of BI coverage:

• How long would it take recover after a physical loss?
• What would it take to relocate temporarily during a BI event?
• What are the consequences if supply chains are affected?

The cost of BI coverage depends on your industry, the number of your employees and locations, and the value of other assets that your BI policy covers

Because each policy has different limits and exclusions, it’s important to work with your broker to determine how much BI coverage you’ll need.