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What is business interruption insurance

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While covered perils vary from company to company, most business interruption policies cover theft, fire, wind, falling objects, or lightning.

 

How much business interruption coverage do you need?

Business interruption policies typically have a coverage limit, which is the maximum amount the insurance company will pay toward a covered claim. For that reason, it's important to make sure you get a policy with coverage limits that are right for your business.

Every business's circumstances are unique, so to estimate the amount of coverage you need:4

1. Estimate how long it would take to restore operations. A small retail store or office might be able to move to a new location quickly. A company with dozens of employees who depend on highly specialized equipment could take much longer to make the necessary repairs or find another suitable location.

2. Calculate business revenues for that period. This includes all products and services you sell.

3. Deduct the cost of goods sold and other operating expenses. The result is your potential lost profit.

4. Add the cost of moving or renting another location. This may include leasing new space and equipment, updating the new location to fit your operations, and more.

Your insurance agent can also help you with these calculations and selecting the right coverage limits.

Important disclosure information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

  1. Insurance Information Institute, “Do I Need Business Interruption Insurance?" accessed January 27, 2021. Back
  2. Allstate, “What Is Business Interruption Insurance?" Updated November 2019, accessed January 27, 2021. Back
  3. JD Supra, “COVID-19 Business Interruption Suits: And Overview of Decisions to Date," Published December 18, 2020, accessed January 27, 2021. Back
  4. Hartford, “Calculate Business Income," accessed January 27, 2021. Back