Here's what keeps most small business owners up at night: it's not a fire or a tornado itself—it's what comes after. When disaster forces you to close your doors, your expenses don't stop. You still owe rent, payroll, loan payments, and utilities. But your revenue? That drops to zero. This is exactly what business interruption insurance is designed to handle.
Think of it this way: property insurance rebuilds your building and replaces your equipment. Business interruption insurance keeps your business alive financially while that happens. It's income protection for when you physically can't operate, covering the revenue you would have earned and the extra expenses you rack up trying to stay afloat.
What Business Interruption Insurance Actually Covers
Let's say a fire damages your retail shop. You're forced to close for three months while repairs happen. During that time, business interruption insurance typically covers:
Lost income you would have earned based on your financial records from before the loss. If you normally bring in $20,000 a month, your policy helps replace that revenue while you're closed. You'll need solid documentation—tax returns, profit and loss statements, sales records—to prove what you would have made.
Operating expenses that continue whether you're open or not. This includes rent, utilities, employee salaries, loan payments, and lease obligations. The lights may be off, but the bills keep coming.
Extra expenses you wouldn't normally have, like renting a temporary location, leasing equipment to keep operating, or paying for expedited repairs to reopen faster. These costs can add up quickly, but they're often what keeps your business from losing customers permanently.
But here's the critical catch: coverage only applies to losses from covered perils that cause physical property damage. Common covered events include fires, lightning strikes, windstorms, riots, explosions, and theft. If your commercial property policy covers it and it causes physical damage, your business interruption coverage can kick in.
The Waiting Period: Your Biggest Surprise
Most business interruption policies don't start paying out immediately after a covered loss. There's a waiting period—typically 24, 48, or 72 hours—during which you're on your own financially. Think of it as your deductible, except instead of a dollar amount, it's measured in time.
During this waiting period, any income you lose and expenses you incur are entirely your responsibility. The insurance doesn't reimburse losses that happen during those first hours or days. Once the waiting period ends, coverage begins—but some policies only cover losses from that point forward, while others may cover losses from day one once the waiting period is satisfied. Check your policy carefully to understand which version you have.
Why have a waiting period at all? It encourages you to take immediate action to get back up and running, and it filters out minor interruptions that businesses can absorb without insurance. If you're only closed for a day or two, you're expected to handle that yourself.
What's Not Covered (And Why It Matters)
Understanding what business interruption insurance doesn't cover is just as important as knowing what it does. These exclusions have tripped up countless business owners who assumed they had protection.
Pandemics and disease outbreaks are specifically excluded from most policies. After the 2003 SARS outbreak caused massive insurer losses, the industry added virus and bacteria exclusions to standard policies in 2006. This became painfully relevant during COVID-19 when many businesses discovered their interruption coverage wouldn't apply to pandemic-related closures.
Floods and earthquakes typically aren't covered either because they're excluded from standard commercial property policies. Since business interruption coverage follows your property coverage, no property coverage means no interruption coverage. You'll need separate flood or earthquake insurance, which may include its own business interruption component.
Government-ordered closures without physical damage won't trigger coverage. If authorities shut down your restaurant due to a health code violation or capacity restrictions, that's not a covered event. The key requirement is physical property damage from a covered peril.
Undocumented income can't be claimed. You need solid financial records—tax returns, bank statements, receipts, profit and loss statements—to prove your losses. If you've been running a cash-heavy business without thorough record-keeping, you'll have a hard time making a claim stick.
Voluntary closures for renovations, relocations, or business decisions aren't covered. The interruption must be involuntary and caused by a covered loss event.
How Much Does Business Interruption Insurance Cost?
Most small businesses pay between $40 and $130 per month for standalone business interruption coverage. When it's bundled into a Business Owner's Policy (BOP) alongside property and general liability insurance, the average cost is around $57 per month, or about $684 annually.
Your actual premium depends on several factors. Higher revenue businesses pay more because they have more income at risk. If you typically earn $500,000 a year, your coverage limits and premiums will be substantially higher than a business earning $100,000 annually. The value of your commercial property matters too—a business operating from an expensive downtown storefront will likely pay more than one running from a small suburban office.
Your industry affects pricing significantly. High-risk industries prone to interruptions—like restaurants, manufacturing, or businesses in hurricane zones—pay higher premiums than low-risk professional services. Location matters too. If your business sits in a flood plain, wildfire zone, or area prone to hurricanes, expect higher rates.
The waiting period you choose impacts cost as well. Opting for a longer waiting period—say 72 hours instead of 24—will lower your premium because you're taking on more risk yourself before insurance kicks in.
Why So Many Businesses Skip This Coverage (And Shouldn't)
Nearly half of small businesses worldwide lack business interruption coverage, despite 31% of businesses identifying business interruption as their top risk. That's a massive gap between perceived risk and actual protection.
Many business owners assume their property insurance is enough, not realizing it only covers physical assets—not the income those assets generate. Others think they can weather a few weeks of closure using savings or a line of credit. But the reality is harsher than most expect. Over 65% of business interruption claims in 2024 stemmed from natural disasters, and recovery times often stretch far longer than anticipated.
Consider this scenario: A tornado damages your building. It takes four months to complete repairs and reopen. During that time, you still need to pay six employees, cover your $4,000 monthly rent, maintain insurance policies, and service business loans. That's easily $40,000-60,000 in ongoing expenses with zero revenue. How many businesses have that kind of cash reserve sitting around?
The coverage is generally available to businesses with 100 or fewer employees and annual revenues up to $5 million—which covers most small businesses. If you fall within those parameters and operate from a physical location, this coverage deserves serious consideration.
How to Get Started and What to Look For
Start by evaluating whether you need this coverage at all. If you operate entirely online with no physical inventory or location, business interruption insurance may be less critical. But if customers come to your location, you manufacture products, or you depend on physical equipment and inventory, this coverage could be the difference between bouncing back and closing permanently.
Most businesses get business interruption insurance as part of a Business Owner's Policy, which bundles it with property and general liability coverage. This is usually more affordable than buying coverages separately. Talk to an insurance agent or broker who specializes in commercial insurance—they can help you determine appropriate coverage limits based on your actual financials.
When reviewing policies, pay close attention to the waiting period, the coverage limit, and the covered perils list. Ask specifically about exclusions—especially for the risks most relevant to your business location and industry. If you're in a flood zone, ask about flood-related interruption coverage. If you rely on key suppliers, ask about contingent business interruption coverage that applies when your supply chain is disrupted.
Get your financial records in order before you even need to file a claim. Maintain detailed records of revenue, expenses, profit margins, and business performance. The more documentation you have, the easier it will be to prove your losses and get the full benefit of your coverage when disaster strikes.
Business interruption insurance isn't the most exciting coverage you'll ever buy, but it might be the most important. When disaster forces your doors closed, having your building repaired is only half the battle. Keeping your business financially alive during that closure is what determines whether you reopen at all. For most small businesses operating from a physical location, that peace of mind is worth the $40-130 monthly investment.
