18 Jun Insurance 101: The importance of business interruption insurance coverage

By Anita Byer

Businesses often struggle to recover after a property loss because the physical damage to their property causes an interruption of business operations. Depending on the severity of the damage, a business may be forced to shut down for weeks, possibly months. Though revenue is lost, expenses remain. The inability to pay business expenses (payroll, loans, etc.) can turn a temporary suspension of business operations into a permanent shut down. Fortunately, business interruption insurance can prevent this from happening.

Business interruption (business income) coverage protects against the loss of income when a covered loss causes a business to reduce or suspend its operations. In the event of a covered loss, business interruption insurance can cover operating expenses, including coverage for:

• lost revenue;
• employee wages;
• mortgage, rent, and lease payments;
• business loan payments; and
• taxes.

Additional business interruption coverages are also available. For example, extra expense coverage reimburses costs over and above normal operating expenses, like temporary relocation costs. Civil authority coverage extends business interruption coverage to losses incurred when a civil authority (governmental entity) prohibits access to your business premises because of physical damage caused by a covered peril to adjacent or nearby property.

Business interruption coverage is triggered when there is direct physical damage to property that was caused by a covered peril. For example, if wind damage is covered under a commercial property insurance policy, there would be business interruption coverage if operations were suspended due to a windstorm. On the other hand, if wind damage is not covered, there would be no business interruption coverage

To calculate a business interruption loss, insurance companies need to determine how much the business would have earned if the loss had not occurred. They may review and consider various financial documents, such as tax returns, bank statements, profit and loss statements and balance sheets, to establish the amount of a business interruption loss.

According to the 2025 Allianz Risk Barometer, “business interruption has ranked either #1 or #2 in every Allianz Risk Barometer for the past decade.” This means that businesses should seriously consider adding business interruption coverage to their existing insurance program. Given the relative complexity of business interruption coverage and the variations among insurers and coverage forms, businesses should work with an experienced and reputable insurance agent to help identify needs and evaluate options.

Please contact us to learn how business interruption insurance can protect your business.