Business interruption insurance (also known as business income insurance) covers the loss of income that a business suffers after a disaster while its facility is being rebuilt. A property insurance policy only covers the physical damage to the business, while the additional coverage allotted by the business interruption policy covers the profits that would have been earned. This extra policy provision is applicable to all types of businesses, as it is designed to put a business in the same financial position it would have been in if no loss had occurred.

This type of coverage is not sold as a stand-alone policy, but can be added on to the business' property insurance policy or comprehensive package policy. Since business interruption is included as part of the business' primary policy, it only pays out if the cause of the loss is covered by the overarching policy.

Coverage

The following are typically covered under a business interruption insurance policy:

• Profits- Profits that would have been earned (based on prior months' financial statements);
• Fixed Costs- Operating expenses and other costs still being incurred by the property (based on historical costs);
• Temporary Location- Some policies cover the extra expenses for moving to, and operating from, a temporary location;
• Extra Expenses- Reimbursement for reasonable expenses (beyond the fixed costs) that allow the business to continue operation while the property is being repaired.

This coverage extends until the end of the business interruption period, which is determined by the insurance company. Most insurance policies define this period as starting on the date of the covered peril and the damaged property is physically repaired and returned to operations under the same condition that existed prior to the disaster.