Understanding Business Interruption Coverage

Business interruption insurance — sometimes called business income coverage — is one of the most valuable and least understood components of a commercial insurance policy. It replaces lost income and covers ongoing expenses when a covered event forces your business to temporarily close or reduce operations.

What Does Business Interruption Cover?. When a covered peril such as fire, vandalism, or certain storm damage causes physical damage to your property and forces a temporary closure, business interruption coverage kicks in. It typically covers: lost net income, fixed operating expenses like rent and utilities, payroll, loan payments, and sometimes temporary relocation costs.

What It Does NOT Cover.. Business interruption insurance requires a physical cause of loss. It does not cover losses from pandemics (as many businesses learned during COVID-19), government-ordered closures unrelated to physical damage, or losses from floods and earthquakes unless those perils are included in your policy.

The Waiting Period.. Most business interruption policies have a waiting period — typically 48 to 72 hours — before coverage begins. This means short-term closures may not trigger coverage.

How Long Does Coverage Last?. The period of restoration is the time it takes to repair or replace damaged property and return the business to its pre-loss condition. Ensure your policy's restoration period is long enough to account for realistic repair timelines. Complex commercial properties can take many months to rebuild.

Extended Business Income.. Even after your property is repaired, customers may have found alternatives during your closure. Extended business income (or extended period of indemnity) coverage provides additional income replacement during the period your business is re-establishing its customer base.

How Much Coverage Do You Need?. Calculate your average monthly net income, fixed expenses, and payroll, then multiply by the number of months you'd need to rebuild and recover. Many businesses are significantly underinsured for business interruption because they haven't updated their limits in years.

AMD Insurance Group can help you review your current commercial policy and ensure your business interruption coverage reflects your actual financial exposure. Contact us today for a free consultation.