Business interruption insurance — also called business income coverage — pays for lost revenue and continuing expenses when a covered loss forces you to slow down or shut down operations. If a fire destroys your building, your property coverage pays to rebuild it. Business interruption pays your bills while you're rebuilding.
Why most limits are wrong
Business interruption limits are typically set at a round number without a lot of analysis behind the figure. The problem is that the right limit depends on two things most people don't think carefully about: how much revenue you'd lose and how long recovery would actually take.
Most policies use a 12-month indemnity period as the default. For a small retail shop, that might be adequate. For a manufacturer waiting on specialized equipment with a 14-month lead time, it's not even close.
How to think about the right limit
Start with your annual gross revenue or gross profit. Then ask: how long would it realistically take to be fully operational again after a total loss? Factor in permit timelines, equipment lead times, and time to rebuild your customer base. For most businesses, 18–24 months is more realistic than 12.
Extra expense coverage
Closely related to business interruption is extra expense coverage — which pays the additional costs of operating from a temporary location or expediting recovery. If you'd pay extra to rent a temporary space or bring in contract labor to meet orders, extra expense coverage pays for that. It's often worth more than the BI coverage itself.
The annual review question
Revenue changes. Operations change. If your business has grown significantly since your policy was written, your BI limit hasn't kept up automatically. This is worth reviewing every year at renewal.
We review business interruption limits as part of every commercial program renewal. See our business insurance approach →