No one wants to consider the possibility of their business temporarily closing its doors. However, disasters like floods and fires can force you to close your physical space. Loan payments, taxes, employee salaries, and other expenses still need to be paid, so that loss of income can have a devastating effect on your business.

Business interruption insurance is meant to protect small businesses when physical loss or damage forces them to suspend operations. Does your current commercial property insurance policy cover business interruption? Do you know what’s covered under these policies, and what’s not? This short guide will help you understand everything you need to know about business interruption insurance. Let’s get started.

What is business interruption insurance?

Business interruption insurance is a kind of insurance that, as the name states, covers interruption to your business’ services caused by a direct physical loss or damage. Basically, that means your insurer pays claims if a fire or other disaster disrupts your ability to operate and generate income. Examples of events that are typically covered include:

  • Property damage due to extreme weather
  • Property damage due to falling objects
  • Theft of essential equipment or merchandise
  • Government lockdowns and mandatory curfews

You may find business interruption insurance in your commercial property insurance or in the property coverage in a business owners policy (BOP). In either case, business interruption coverage is only triggered by perils already covered by the primary policy unless you upgrade your basic policy to get broader coverage.

What does business interruption insurance cover?

To understand your business interruption insurance policy, it’s important that you read it, and if you have questions, speak to your licensed agent or broker. That said, the intention of these policies is to cover your lost revenue and expenses while your business relocates, conducts repairs, or temporarily ceases all operations.

Depending on your policy limits and the specifics of your terms, your business interruption insurance may cover full or partial payments on:

  • Your business’ rent – If you’re a photographer and your rented studio floods, limiting your ability to conduct your work, your policy may help cover your rent until repairs have been completed.
  • Relocation costs – If you’re a home decorator whose studio is damaged by a fire, your policy may help cover the costs of finding and moving to a temporary workspace.
  • Payroll – If you’re a nail salon owner whose salon must close due to a government lockdown, your policy may help cover your employees’ wages until you reopen.
  • Payments on business or auto loans – If your new personal training studio is closed due to a collapsed roof, your insurance may help you cover the loans you took out for your work vehicle.
  • Tax payments – If you’re a life coach and structural damage in your office limits your ability to meet clients and collect payments, your insurance may help you with your business tax payments.

Your business interruption insurance can help you cover costs that you cannot meet while your operations cease so that a temporary pause doesn’t become a permanent closure.

What does business interruption insurance not cover?

While business interruption insurance can help you cover many of the costs associated with temporary closure and relocation, it’s important to note that it leaves out the costs of damage and repairs. Let’s look at some examples:

  • If you’re the photographer whose studio floods, your specialized equipment may be damaged in the process. Your business interruption insurance does not cover the cost of damage to your equipment. Likewise, if you’re the home decorator who owns their own studio (and there’s a construction accident), your business interruption insurance will not cover the cost of the property repair.
  • If you’re a window installer whose work vehicle is damaged by a falling tree, interrupting your ability to serve your clients, your business interruption insurance would not cover your vehicle repair or replacement.

In short, for damage to your business assets including your equipment, your vehicle, or your office (if you own it), you’ll need another kind of insurance. You may want to consider commercial property insurance and auto insurance for damage and loss-of-use related to your business assets.

How much does business interruption insurance cost?

Small business owners often get business interruption insurance in their business owners policies. This bundle of general liability insurance and commercial property coverage for small business owners typically starts at $25 per month. However, that price varies because insurance companies evaluate several factors when determining your premium, such as:

  • Your business’ location.
  • The property’s building construction type (e.g., fire-resistive, wood frame).
  • The amount of Business Content Insurance (e.g., coverage for movable property like computers or inventory) you need.
  • Your business’ proximity to a fire station.
  • The coverage amounts you select.

If you are a tenant, you can opt out of building coverage and get a Business Owners Policy that only includes Business Content Insurance.

Business interruption terms

How long does your business need to close before your insurance kicks in? What else should you know about its terms and limits? To understand your business interruption insurance, you’ll need to understand the following terminology:

  • Waiting period: the amount of time you must wait for your business interruption insurance to take effect. The waiting period for our BOP coverage is 72 hours.
  • Restoration period: the maximum length of time your business interruption insurance will help you cover costs related to the closure. A typical restoration period may be 12 months, but this depends on your policy.
  • Policy limit: the maximum amount your insurer will pay out due to interrupted services. Coverage limits on BOP through Thimble start at $250,000 for building coverage and $50,000 for Business Content insurance.
  • Deductible: the amount you must pay out-of-pocket before your insurer begins payment. Policies through Thimble offer deductibles of $250, $1,000, and $2,500.

Let’s take a look at an example.

You’re a music teacher and the pipes burst in the studio you rent, damaging your drum kit and preventing you from giving lessons. The total cost of lost wages and relocation over the course of three weeks is around $10,000. You have a Business Owners Policy with a $1 million limit, a $5,000 deductible, a 72-hour waiting period, and a one-year restoration period.

  • $10,000 is covered by the business interruption insurance in your BOP, so long as that amount reflects your loss after the 72-hour waiting period.
  • You must pay a $5,000 deductible before your insurer pays out the additional $5,000.
  • The cost of a new drum kit is not covered by your business interruption insurance, but it’s most likely covered by the commercial property coverage in your BOP.
  • Since the business interruption is only two weeks, you are well within your restoration period.

What other business insurance do you need?

Natural disasters and government shutdowns aren’t the only events that can put you temporarily out of business. In addition to business interruption insurance, most businesses need general liability insurance and professional liability insurance to protect them against client and third-party claims of property damage, bodily injury, and professional advice that causes a financial loss to a client.

Getting a BOP via Thimble is hassle-free. Download the Thimble app or click “get a quote.” When you enter your ZIP code, and a few details about your business, our customer service professionals will guide you through the rest of the process. Get your quote and purchase within minutes, and your Certificate of Insurance (COI) will be ready for you instantly on your app and in your inbox. And if you need professional liability insurance, you can get your quote and purchase with just a click.

Managing your risk with business interruption insurance

Every small business takes on risks when opening. However, your business is vital not just to you, but also to your community. To make sure you can survive the obstacles that come your way, Thimble makes it easy to purchase a BOP that automatically includes business interruption insurance.

After all, the more protection you have, the easier it is to focus on what matters—scaling your business.

Our editorial content is intended for informational purposes only and is not written by a licensed insurance agent. Terms and conditions for rate and coverage may vary by class of business and state.