Business Interruption Insurance

Overview

Business interruption insurance (also called business income coverage) compensates a business for lost revenue and continuing expenses when operations are halted or significantly reduced due to a covered property loss. If a fire, storm, or other covered peril damages a business's premises to the point where it cannot operate, business interruption coverage replaces the income the business would have earned during the restoration period.

How It Works

Business interruption coverage is not a standalone policy — it is typically included as part of a commercial property insurance policy or a Business Owner's Policy (BOP). The coverage activates when a covered peril causes physical damage to the insured's property that results in a suspension of operations.

Key components of business interruption coverage include:

• Business income: Replaces net profit and continuing operating expenses (rent, utilities, payroll) that the business would have earned during the period of restoration
• Extra expense: Covers additional costs incurred to minimize the interruption — such as renting temporary office space or expediting repairs
• Period of restoration: The coverage period begins when the property damage occurs and ends when the property is repaired or should have been repaired with reasonable diligence
• Extended business income: Some policies extend coverage beyond the restoration period to account for the time needed to rebuild customer volume
• Contingent business interruption: Covers income loss caused by property damage at a key supplier or customer's premises rather than the insured's own property

The insured must demonstrate the actual loss sustained using historical financial records. Most policies include a waiting period (typically 72 hours) before coverage begins.

Compliance Relevance

Business interruption insurance matters in COI compliance when vendors' operational continuity directly affects the certificate holder:

• Critical service vendors: If a key vendor (security, HVAC, elevator maintenance) suffers a property loss and cannot provide services, the certificate holder's operations may be disrupted
• Tenant requirements: Commercial leases may require tenants to carry business interruption coverage to ensure they can continue paying rent during a restoration period
• Contingent coverage: Property managers and GCs may want to verify that critical vendors have adequate coverage to resume operations quickly after a loss
• Limit adequacy: Compliance teams should ensure business interruption limits reflect the vendor's actual revenue exposure, typically calculated as 12 months of projected income

Business interruption coverage is typically evidenced on an ACORD 28 (Evidence of Property Insurance) or referenced in the property section of a broader certificate.