The past 2 years have shown everyone just how important it is to be prepared for potential lulls in businesses. If you do not have things set up properly, even a small business interruption can put your operation on the ropes and leave you struggling. That is where business interruption insurance comes in. Business Interruption insurance exists to make sure you are compensated for any unexpected breaks in business.
Overall, the average cost of business interruption insurance is around $500 to $1500 per year. Businesses in high-risk industries can pay significantly more, on the order of $3000+ a year. Business interruption insurance costs are determined by your total revenue, type of business, location, and other risk-relevant factors.
There are a lot of specifics surrounding businesses interruption insurance and it is important that you understand the different types and their associated costs. So we put together this comprehensive guide on the costs of business interruption insurance
- What Is Business Interruption Insurance?
- What Does Business Insurance Cover?
- Business Interruption Insurance Costs
- Business Interruption Insurance Endorsements and Additional Coverage
- Business Interruption Insurance Coverage Limits
- Business Interruption Insurance Deductible
- Best Business Interruption Insurance Providers
- Frequently Asked Questions
What Is Business Interruption Insurance?
No matter what kind of business you own, you may have to put operations on hold temporarily. Depending on your margins, pausing your business can be very difficult, especially if you are already operating on a thin budget. Any pause in revenue generation can be tough to manage.
Business interruption insurance exists to make sure that they are compensated for any loss in revenue due to unexpected business interruptions. Generally, business owners buy an interruption policy with their business owners policy (BOP) or with another commercial insurance policy package.
If your business relies on a physical location for its operation, such as a spa or a restaurant, you should consider investing in interruption insurance. If you have a small business, you practically need business interruption insurance as any disturbance can affect your bottom line. That goes double if the shutdown is due to another expensive issue such as property damage and repairs.
What Does Business Insurance Cover?
Business interruption insurance exists to compensate you in the case that your business income is interrupted. So, your policy will cover any losses that you would not have incurred if you had n0ot had to shut down. The typical policy will cover things like
- Employee wages
- Rent or mortgage payments
Your policy may cover more than just these categories. It depends on the specifics of your policy.
Like all other kinds of insurance policies, business interruption insurance has exclusions and conditions. The most notable exclusion is that an interruption policy will not cover things excluded from your larger commercial property insurance policy.
Also, interruption policies are clear to exempt losses due to changing economic circumstances or market conditions. You won’t get reimbursed if you lose revenue because a competitor takes some of your traffic.
Be sure to keep close tabs on all your business income as policies will not cover undocumented income. Any expenses above your coverage limit will also be excluded. So you need to be sure and increase your policy limit as your business grows larger.
Business Interruption Insurance Costs
Like most types of commercial insurance, business interruption insurance costs differ based on various factors. However, the average business can expect to pay between $40 to $140 a month, or about $500 to $1500 a year. Some businesses can end up paying significantly more for insurance, especially businesses that have a number of liabilities.
Here are some factors that can affect the cost of interruption insurance.
Property value. All other things being equal, the more expensive your property, the more your policy will cost. This is because the policy is covering a higher limit. This also means that the total payout of your policy will be larger because it needs to insure a more expensive property.
Industry and risks. Businesses in riskier industries that are more subject to shutdowns will have to pay more for interruption insurance. For example, a restaurant may pay a higher premium than an accounting agency as a restaurant has more potential hazards that could put it out of business.
Revenue. Given that an interruption policy is meant to compensate you in the event of lost income, your total revenue is an important factor for determining policy costs. The higher your revenue, the more your policy has to cover in case you make a claim, so the higher your premiums.
Employees. Business interruption insurance is also based on your total number of employees.
Location. If your business is located in an area that gets lots of natural disasters, then you will have to pay a higher insurance premium. Businesses located in areas with high crime rates may also have to pay a higher price too.
Coverage limit. The larger the limit on your policy, the more you will have to pay. A higher coverage limit means that your insurer will pay out more money if you make a claim. So when you have a high coverage limit, your premium is higher to offset those potential costs.
So for example, a small business that is located in a low-crime area with temperate weather year-round might pay less than $800 a year for an interruption policy. Alternatively, a business located in a high-crime area of Florida where flooding is common may pay thousands a year for their policy.
The majority of businesses can expect to pay less than $2,000 per year for a policy, though larger businesses in high-risk industries can pay $10,000+ in annual premiums.
Generally speaking, insurance providers will include business interruption insurance in a business owners policy (BOP), which can include general liability, workers compensation, and property insurance.
The cost of a BOP varies based on numerous factors related to your business but the typical policy costs about $500 to $3,500 a year. Most small businesses end up paying less than $2,000 for their BOP, though businesses with a lot of liabilities can pay upwards of $5,000+ a year. Again, businesses in areas more prone to damages or crime will have to pay more.
Buying a BOP can often save time and money because it includes basic insurance for businesses in a single bundle. Most providers will also allow you to pick and choose parts of your BOP, so they are customizable plans.
Business Interruption Insurance Endorsements and Additional Coverage
Business interruption insurance only covers certain types of unexpected losses, such as those arising from a natural disaster or political circumstances. However, there are several events that the typical policy will not cover.
Business owners can get optional endorsements on their policy to add additional coverage. The cost of endorsements also varies based on things like location, industry, business revenue, and more. An endorsement can cost as low as $10-$20 a month or as much as $100-$200 a month, depending on risk factors.
Common endorsements you may see on a business interruption policy include
Extra Expense Insurance
An extra expense endorsement is meant to provide additional coverage on top of your base policy limit. Extra expense insurance can be used to cover anything above and beyond the costs of keeping the essentials running. This can include temporary renting, hardware or furniture replacement, overtime expenses/new hiring expense, or the costs of leasing equipment.
Most businesses rely on complicated supply chains they might not have direct control over. Contingent interruption endorsements will cover you in the event of the loss of non-owned property that is important for generating business revenue. Dependent properties include suppliers, buyers, providers, or drivers.
So for example, if there is a disaster that affects a plant that creates the materials you use, a contingent interruption policy could kick in and offer relief. This kind of policy may also cover you in the event that inclement weather shuts down truck transportation networks and negatively affects your business.
A utility services endorsement provides protection to a business that suffers losses due to interruption of one or more utility services, such as water, gas, electric, or sewage. Utility endorsements may provide coverage based on the total amount of time service was interrupted or may only cover direct damage due to faulty utilities, shut as untreated water and sewage damage.
A civil authority endorsement provides coverage in the event that a local, state, or federal government entity prohibits access to the business premises due to nearby conditions such as physical damage to nearby property. Traditionally, this kind of coverage was limited only to physical damages to property that prevents access, but these kinds of policies have recently expanded to include non-physical events such as pandemics.
Business Interruption Insurance Coverage Limits
Business interruption insurance is meant to protect a business from loss of income so the exact limit will be different for everyone. A good way to estimate the limit you need is to estimate future profits using your current gross earnings. You want high enough coverage to cover this number and some more, so choose a policy with a limit higher than what you absolutely need. It can be in your best interest to pay the more expensive premium rather than exceed your limit and pay for the rest out of pocket.
Business Interruption Insurance Deductible
Like most insurance policies, business interruption insurance typically has a deductible. There are two types of deductibles for interruption policies.
The first kind is either a fixed dollar or percentage amount. This kind of deductible might either be a specific number (e.g. $25,000) or a percentage of the total value of your property. Overall, the more expensive your property, the higher your deductible will be.
Keep in mind that different kinds of interruptions may have different deductibles. For example, a policy may have a higher deductible for interruptions from flood damage than from fire damage. Or a policy might have different deductibles or waiting periods for interruptions caused by natural disasters or crime.
With a waiting period deductible, coverage will not start until a set time after the damaging incident. For example, a waiting period deductible may require a 72-hour waiting period after the event before coverage kicks in. In some cases, these kinds of waiting periods may be required before you can make a claim on your policy.
Best Business Interruption Insurance Providers
Nationwide is one of the largest commercial insurance providers in the country and offers a large range of commercial insurance, including business interruption insurance. They offer a standard BOP for small businesses with less than 100 employees that cover interruptions from fires, wind damage, hail damage, vandalism, or vehicle damage.
The BOP also includes general liability, business property, and business income coverage. You can also add additional equipment breakdown coverage as well as workers’ compensation coverage and builders risk insurance.
The Hartford offers commercial insurance for businesses that rely on heavy equipment uses and offers interruption policies bundled with other kinds of landscapers insurance. A basic interruption policy covers losses from fire, wind, or theft, and offers a standard BOP that includes general liability and property insurance. The Hartford offers wider coverage than many other insurance companies but they co charge higher premiums.
Chubb is one of the largest commercial insurance providers in the country and originally started specifically offering boat and maritime insurance. Chubb’s BOP policy does not already include interruption coverage but you can add it to your existing policy for an extra fee. You can also add things like professional liability, equipment coverage, auto insurance, and theft coverage to a Chubb BOP.
Next Insurance has a relatively short history but so far has an excellent track record. You can buy policies from Next Insurance entirely online, so you don’t have to go to a physical branch, unlike with larger, traditional insurance companies. Next Insurance offers free quotes online for tailored policies. A Next Insurance BOP with added business interruption insurance can start as low as $750 a year.
State Farm is another large insurance company that offers commercial insurance packages. State Farm offers insurance specifically tailored for those in the food business, so if you own a restaurant, State Farm might be a good option for business insurance. The typical State Farm insurance policy covers restaurant-unique issues such as advertising expenses, food spoilage or contamination, and sewage backup. The best way to get a quote for a State Farm policy is to call and talk to a representative for a quote.
Frequently Asked Questions
Do I need business interruption insurance?
Strictly speaking no, most states do not require you to have business interruption insurance. However, depending on the type of business you run, business interruption insurance can be worth it. A good policy can save you a lot in the event you face an unexpected shutdown.
How much does business interruption insurance cost?
The average business interruption insurance costs about $40 to $140 a month, or about $500 to $1,500 per year. Most businesses pay less than $2,000 a year. Business interruption insurance is often packaged with a business owner’s policy which includes basic commercial insurance provisions such as general liability, workers compensation, and property insurance.
How much does a business owners policy (BOP) cost?
One option is to buy a business owners policy (BOP) and add interruption risk. The typical BOP costs anywhere between $500-$3,000 a year, though most companies pay less than $2,000 per year. A BOP can help you save on interruption insurance by bundling it with other common commercial insurance like property and workers’ compensation coverage.
What does business interruption insurance cover?
Business insurance covers losses your business suffers due to unforeseen shutdowns. This can include things like workers’ wages, rent/mortgage payments, lost profits, and other forms of lost revenue or expenses. You can add endorsements to expand the scope and coverage limits of your policy.
Is business interruption insurance worth it?
If you operate in an industry that relies heavily on physical store locations, then yes, interruption insurance is probably worth it. If the global COVID-19 shutdown taught us anything, it’s that business can grind to a halt at a moment’s notice. A typical interruption policy can cost less than $800 a month and can save you thousands in expenses. So it’s best for you to be prepared.
Most small businesses can’t handle too much time with normal operations disrupted. Business interruption insurance can give you relief in the event that your business suffers a shutdown from unforeseen events. Whether you need help paying employee wages or need to be compensated for lost income, an interruption policy can protect you from common losses of income.
When shopping for an interruption insurance policy, make sure you do your research and know exactly what your existing policy covers. Many providers have specific restrictions on using interruption insurance, so make sure your policy covers common risks in your line of business. If you are one of the many small businesses in this country, then odds are you will end up paying less than $2,000 annually for your policy, unless you work in a high-liability industry.