What is Business Interruption Insurance & Do You Need It?

Updated on 28 April 2023

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business interruption insurance

One of the most important things to do when starting a business is to set the business up with the right insurance policies. This can get confusing, as there are so many policies available, each with its own pros and cons.

One option to consider is business interruption insurance. Business interruption insurance covers your operating expenses in the event of an unforeseen emergency. You never know when you might need it, but if something does happen it can be a lifesaver for your business.

This guide covers what you need to know about business interruption insurance and how it works.

What is Business Interruption Insurance?

Business interruption insurance is a unique type of insurance policy that covers your business for any earnings it might lose while recovering from the impact of theft or other surprise damages. The purpose of business interruption insurance is that it lets your business continue to pay its expenses even when it’s not generating income. This can be a lifesaver for many businesses when an unexpected event occurs. This means, once your business is able to operate again, it can start where it left off, without having to recover from a difficult financial situation.

Business interruption insurance is a type of complementary insurance. This means it’s only available if you already have another type of business insurance policy in place. The business interruption insurance policy will simply improve the benefits of the primary insurance coverage your business has.

What Does Business Interruption Insurance Cover?

Business interruption insurance covers any fixed expenses of the business. This includes the lost profits of a business during a certain period, as well as the regular working expenses a business normally incurs. It can also cover the costs that a business faces when they lose connection to essential services. Business interruption insurance specifics come down to individual policies. What the policy covers can be adjusted based on the business and its specific needs. Of course, more coverage from the policy will require a greater premium.

How Does Business Interruption Insurance Work?

Business interruption insurance isn’t focused on covering a business’s direct losses from an incident – like broken machinery or vehicles. Instead, this type of insurance covers the loss of business activity due to the incident. For example, you might run a shop that gets hit by a fire. After the fire, you establish that you need to spend a week replacing the fittings and stock inside the shop that the fire damaged. This will be covered by a regular business insurance policy.

During the week that the shop refit takes place, you’ll still need to pay your business loan, staff salaries, rent, and other fixed business expenses. This is what business interruption insurance covers.

Is Business Interruption Insurance Important?

Like any type of insurance policy, business interruption insurance really proves its worth when you need it. However, you can never be sure when you do need it. If your business takes a hit from an unexpected event, like a burglary, then maintaining your regular expenses can be a very difficult task. This will either require you to dip into your savings or take out a loan. Either way, you’ll be left with a hole to fill when your business starts operating again.

If you do not have these kinds of emergency funds available, then an unforeseen event could even result in the failure of your business. This could be catastrophic. With business interruption insurance, you never have to worry about these issues taking place. This means your business can easily weather any storms it’s faced with, and overcome surprise challenges a lot more easily.

Of course, it’s essential that your business interruption insurance policy covers the right details. You’ll need to understand exactly what type of incidents could cause the coverage to kick in, and what expenses your business is covered for. Make sure these expenses stay up to date as your business grows. You’ll also need to understand exactly what your regular business insurance policy covers and know how interruption insurance will complement this.

Business interruption insurance is certainly an important consideration to make. There are many things that could go wrong in running a business, and if you’re not prepared for them, it could result in the end of the business. Take some time to understand what policies are available and how they could benefit your business. This insurance could be essential if a surprise event ever occurs.


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