What is Business Interruption Insurance?

Mary McMahon
Mary McMahon

Business interruption insurance is an insurance product which insures businesses against losses incurred when they have to close as a result of a named peril such as fire or flooding. It is purchased as an addition to an existing insurance policy, and there are several types of business interruption insurance available. This insurance product can be a very sound investment for a business. While most businesses wouldn't operate without, for example, fire insurance, they might not think about what would happen if they had to close temporarily because of a fire, and business interruption insurance is designed to cover this.

Business interruption insurance insures businesses against losses that may occur when they have to close a result of a named peril.
Business interruption insurance insures businesses against losses that may occur when they have to close a result of a named peril.

If a business closes because of fire, flooding, loss of power, wind storms, or other perils named on the business interruption insurance policy, the policy will compensate the company for lost profits during the period of closure, and pay fixed expenses which may persist even while the business is closed. For example, a business would need to pay rent even if the power was out. Some business interruption insurance policies will also provide coverage which would allow the business to operate in temporary premises until the original facility is ready for use.

Businesses may be eligible to purchase extra expense insurance, a form of business interruption insurance which will cover costs to keep a business open if it is cheaper to do that than to provide coverage during a closure. Another related product is contingent business interruption, which provides coverage when a business is interrupted by a problem with a supplier. For example, if there is a fire at a supplier's warehouse and nothing can be shipped, a business may be forced to close or curtail operations until the supplier gets back on its feet; contingent business interruption insurance provides coverage during this period.

When discussing business insurance options with an insurance agent, it is advisable to ask about business interruption insurance and other relevant insurance products. It can pay to think ahead when it comes to potential problems which a business may encounter, as there are insurance products for a wide range of situations which may help to keep the business functional. Business owners may also want to consider asking other members of the community if they have specific advice which might be relevant to the area. For example, buying extra flood coverage might not occur to a business if it wasn't aware that its premises were located in an area which tends to experience flooding in the winter.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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