Glossary
Business interruption insurance, defined
Coverage on a commercial property policy that replaces the net income a company loses, and pays the expenses that continue, while it is shut down by physical damage the policy covers.
In practice
It is triggered only by covered direct damage: a fire, a burst pipe, a storm. A power cut at the utility, a pandemic or a road closure is not a trigger unless a specific endorsement adds it. The period of restoration runs from the loss until the premises could reasonably be repaired, with an optional extended period to rebuild revenue afterward. A waiting period of a few days usually applies. The limit is set from a worksheet of projected income, and underinsurance is common because owners guess low. Extra expense coverage, which pays for a temporary location or rush shipping to keep operating, is usually bundled with it.
A worked example
Suppose a bakery's kitchen fire closes it for four months. Its monthly net income was $12,000 and continuing payroll and rent were $9,000 a month. The claim is roughly $84,000 for the closure, plus extra expense for a rented commissary kitchen, less the waiting period. Hypothetical figures.
Applies to: Business Owners Policy (BOP)Restaurant Insurance