How does interruption insurance work?

Interruption insurance—often called business interruption (BI) insurance—protects your business when a covered event forces a temporary shutdown. It replaces lost income and covers extra operating expenses during restoration.

1. When Interruption Insurance Kicks In

This coverage activates when your business operations are disrupted due to physical damage caused by a covered event, such as:

• Fire, storm, flood (if endorsed), or vandalism

• Equipment breakdown or utility outage

• Physical damage from a covered peril that forces closure or partial shutdown

Interruption insurance only applies when operations are directly affected and cannot continue as normal.

2. What It Covers

Interruption insurance typically pays for:

• Lost revenue: The projected income you would have earned during downtime minus variable expenses.

• Fixed costs: Rent, utilities, payroll, and lease payments you still owe despite closure.

• Extra expenses: Additional costs incurred to speed recovery—like rental space, temporary staffing, or outsourcing.

• Operating during recovery: Helps maintain normal performance levels while under repair.

Some policies also offer contingent interruption coverage—protection for loss caused when suppliers, customers, or third-party facilities are affected.

3. Key Policy Structures

Coverage is defined using several variables:

• Indemnity period: The maximum duration for which losses can be claimed (often 12–24 months).

• Waiting or deductible period: A time delay (commonly 48–72 hours) before insurance starts paying.

• Valuation method:

  • Actual Loss Sustained: Pays actual lost earnings and extra costs.

  • Gross Earnings: Based on revenue trends prior to the event.

Some policies include additional options like extended interruption for slow recoveries.

4. Filing a Successful Claim

To file efficiently:

• Maintain financial records and profit forecasts to document expected income.

• Submit expense reports for fixed and extra operating costs.

• Keep receipts and documents for recovery-related expenses.

• Report promptly and follow insurer protocols for timeline and documentation.

5. Why It Matters to Your Business

Without interruption insurance:

• You’re responsible for income loss during unavoidable shutdowns.

• Fixed costs continue regardless of your ability to operate.

• Restaurant, retail, or service businesses may face financial collapse in prolonged downtime.

With proper policy limits, interruption coverage acts like a financial buffer during critical recovery periods.

Summary Table

Final Takeaway

Interruption insurance fills the financial gap when a covered event halts your business. It includes income protection, covers ongoing expenses, and speeds recovery with extra funds. Without it, closures—even brief—can be financially devastating.

Need help picking the best interruption or business income policy?
With 30+ years of experience and access to nearly 100 insurers, THAgency guides you to the right coverage—tailored to your industry, downtime risk, and budget. Submit a fast, free, and secure inquiry today.