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Do You Need Business Interruption Insurance?

A recent survey shows that one in four small businesses would not be able to recover from a three-month shutdown, whether because of a storm or fire. You may have your commercial property insured, but are you prepared to protect your cash flow in the event of a crisis? Will your company be able to bounce back and shoulder the losses in case of unforeseen setbacks? This is where Business Interruption insurance can come in.

How does Business Interruption insurance work?


If your business is not able to continue operating due to an incident or loss, then business interruption insurance may cover the cash flow shortfall you experience. For example, if a fire renders your facility or store useless and leaves you no choice but to stop operations for repairs or renovation, months will pass with your company not being able to generate revenue. While your operations are temporarily on hold, and your cash flow is reduced, the responsibility to pay for ongoing expenses can remain.

Business Interruption insurance helps pay for the costs of locating new facilities, training replacement machinery operators, and paying staff members. It may cover expenses incurred during an “indemnity period” which means the length of time a company may need financial assistance to pay for ongoing expenses. Insurance companies offer indemnity periods ranging from 3 to 36 months.

What does Business Interruption insurance cover?

To help you better understand why Business Interruption insurance is an important consideration for a business, here is a list of the expenses it may cover:

  • Employee salary
  • Rent/lease payments
  • Lost revenue
  • Taxes
  • Advertising costs to inform clients of relocation

Business Interruption insurance can covers the expenses mentioned above, but companies can add any of the following to their policies for further protection:

1. Civil Authority Insurance - This covers losses arising from situations where federal, state, or local government orders forbid entry to your business premises as a direct result of physical damage caused to a nearby property.

2. Extra Expense Insurance - This coverage option applies to costs incurred from having to recover from losses, which your company would have otherwise not incurred had there been no property damage. Examples are employee overtime pay and rent costs for a temporary office.

3. Ordinance or Law Insurance - This extends to business interruption losses caused by prolonged downtime for facility repairs and is usually applied to situations involving damaged premises that are required to be repaired in adherence to the building code or companies having difficulties with repairs due to isolated locations.

Management Liability insurance is designed to provide protection to both the business and its directors or officers for claims of wrongful acts in the management of the business.

A business insurance pack can provide cover for your business premises and contents, against loss, damage, theft or financial loss from an insured interruption to the business.

Purchase up to six products under one Business Insurance Package. 


1. Civil Authority Insurance - This covers losses arising from situations where federal, state, or local government orders forbid entry to your business premises as a direct result of physical damage caused to a nearby property.

2. Extra Expense Insurance - This coverage option applies to costs incurred from having to recover from losses, which your company would have otherwise not incurred had there been no property damage. Examples are employee overtime pay and rent costs for a temporary office.

3. Ordinance or Law Insurance - This extends to business interruption losses caused by prolonged downtime for facility repairs and is usually applied to situations involving damaged premises that are required to be repaired in adherence to the building code or companies having difficulties with repairs due to isolated locations.

Business Interruption insurance may also reimburse losses from damage to suppliers’ premises. Past loss experiences, industry type, coverage amount, and the number of employees are some of the factors taken into account when determining its cost. While it may seem like an additional expense, adding this layer of protection for your business will not only save you more money in the event of a temporary shutdown–it can also save your company from having to terminate operations permanently. 

Talk to an insurance broker today to learn more about how Business Interruption insurance can safeguard your company.
General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.

All information above has been provided by the author.


ADVISR, ABN 17 613 588 266

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