Here's something most business owners don't think about until it's too late: your building might be insured, but what about the money you're not making while it's being repaired? A fire might destroy your restaurant's kitchen, and your property insurance will cover the rebuild. But what about the three months of revenue you lose while contractors are working? That's where business interruption insurance comes in—and it's the difference between weathering a crisis and closing your doors permanently.
Business interruption insurance (also called business income insurance) replaces your lost profits when a covered event forces you to shut down temporarily. Think of it as a financial bridge that keeps your business alive when disaster strikes. The sobering reality? Nearly half of all small businesses globally lack this coverage, leaving them dangerously exposed to events that could wipe them out.
What Business Interruption Insurance Actually Covers
Business interruption insurance doesn't work the way most people think. It's not a standalone policy you can buy separately—it's typically added to your commercial property insurance or included in a Business Owner's Policy (BOP). And here's the crucial part: it only pays out when physical damage from a covered peril forces you to close or reduce operations.
What does it actually cover? Your lost net income is the big one—the profit you would have earned if the interruption hadn't happened. But it also covers continuing expenses that don't stop just because your doors are closed: rent, loan payments, employee salaries, taxes, and utilities. Some policies even cover extra expenses you rack up trying to keep operating, like renting temporary space or paying overtime to make up for lost production time.
The catch? The damage has to come from a covered peril—typically fire, storms, vandalism, or other physical disasters. Over 65% of business interruption claims in 2024 were linked to natural disasters, while cyber incidents accounted for 31%. But here's where business owners get tripped up: most standard policies exclude pandemic-related closures and cyber incidents unless you specifically add that coverage. The COVID-19 pandemic taught us this lesson the hard way.
Understanding Waiting Periods: The First 72 Hours Are On You
Here's where business interruption insurance gets tricky, and where many business owners feel blindsided: the waiting period, sometimes called an elimination period. This is a specified period—typically 24 to 72 hours—immediately after the damage occurs when your policy won't pay a dime for lost income. Think of it like a time-based deductible.
So if a fire damages your retail store on Monday morning, and you have a 72-hour waiting period, your business interruption coverage doesn't kick in until Thursday morning. Those first three days of lost revenue? You're absorbing that loss yourself. And here's the kicker—when coverage finally begins, it doesn't retroactively cover what you lost during the waiting period. Those days are simply gone.
Why do insurers do this? The waiting period encourages you to take immediate action—making emergency repairs, finding temporary solutions, doing whatever it takes to get back up and running quickly. It also keeps small, short-term interruptions from generating claims, which helps keep premiums reasonable. For cyber insurance policies, waiting periods tend to be shorter, typically 8-12 hours, reflecting the urgent nature of digital disruptions.
Documentation: The Make-or-Break Factor in Claims
Let's be brutally honest: business interruption claims are complex, and poor documentation is the number one reason claims get reduced or denied. You're not just proving that you closed—you're proving what you would have earned if the disaster hadn't happened. That requires rock-solid financial records.
Start gathering documentation from day one of the interruption. You'll need your tax returns to establish historical income, detailed sales records comparing the loss period to prior years, and production or inventory records showing what you normally would have generated. But you also need to account for trends—was your business growing? Are there seasonal factors? A restaurant that closes in December needs to prove they would have had strong holiday sales, not just average monthly revenue.
Track every extra expense meticulously. If you rent temporary space, hire additional staff to speed up recovery, or pay overtime to make up for lost production, document it all. These expenses are often covered, but only if you can prove they were necessary to mitigate your loss. Keep receipts for repair costs, correspondence with contractors about timelines, and records of continuing expenses like rent and utilities that you paid despite being closed.
The restoration period is another critical concept. This isn't necessarily when you reopen—it's when your business could reasonably return to its pre-loss condition with proper speed and diligence. Insurance companies will scrutinize whether you took reasonable steps to minimize the interruption and get back to business. The better your documentation of the restoration process, the stronger your claim.
The Claims Process: What to Expect
Filing a business interruption claim follows a specific process, and understanding it upfront prevents costly mistakes. First, notify your insurer immediately in writing. Your policy specifies who to contact and how, so follow those requirements exactly. Verbal notification isn't enough—put it in writing to document your compliance.
Next, document everything about the physical damage and how it occurred. Take photos, get repair estimates, and create a timeline. Then comes the financial analysis—calculating your income loss by comparing what you would have earned to what you actually earned (or didn't earn) during the shutdown. This is where your historical records become invaluable.
You have a duty to cooperate with your insurer throughout the process. That means responding promptly to requests for documents, allowing adjusters to inspect your property, and providing sworn statements if required. You also have a duty to mitigate—to take reasonable steps to reduce your loss. If you could have rented temporary space to keep operating but chose not to, the insurer might reduce your payout accordingly.
Business interruption litigation has surged in recent years. More than 650 coverage lawsuits were filed in 2024—over 50% higher than any pre-pandemic year in the preceding decade. Many of these disputes involve complex questions about coverage triggers, policy exclusions, and the calculation of losses. This is why clear documentation and understanding your policy inside and out matter so much.
How to Get Started With Business Interruption Coverage
If you're among the estimated 30-40% of small business owners who already have business interruption insurance, take time to review your policy carefully. Understand what perils are covered, what your waiting period is, and how your coverage limit is calculated. Many policies calculate limits based on your annual revenue, but some use monthly revenue or other formulas. Know what triggers coverage and what's excluded.
If you don't have this coverage yet, talk to your insurance agent about adding it to your commercial property policy or BOP. Come prepared with financial documents—your agent will need to understand your revenue, profit margins, and operating expenses to recommend appropriate coverage limits. Consider whether you need additional coverage for cyber incidents or supply chain disruptions, as these are increasingly common causes of business interruption.
The cost of business interruption insurance varies widely based on your industry, location, revenue, and risk factors. A small retail shop might pay a few hundred dollars annually as part of a BOP, while a manufacturing facility with higher revenues and risks might pay thousands. But compare that cost to your alternative: trying to survive months without income while paying continuing expenses out of pocket.
The business interruption insurance market is growing rapidly—projected to reach $80 billion by 2033—because more business owners are realizing they can't afford to operate without this safety net. Natural disasters caused $368 billion in economic damage in 2024 alone, with approximately 60% going uninsured. Don't let your business become part of that statistic. Review your coverage today, understand what you have (or don't have), and make sure you're protected before disaster strikes.
