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Home Blog Understanding Business Interruption Insurance: Three Things You Need to Know


Business Interruption

Whether it's a tornado, a fire, a severe storm or some other disaster, you never know when an unforeseen situation could arise that prevents your business from operating. With unpredictable, sometimes severe weather becomingly increasingly common, now is the time to ensure that your business is adequately protected.

According to the Insurance Institute for Business & Home Safety, 25 percent of businesses that close due to a disaster do not reopen. In addition, many business owners may not realize that traditional property insurance does not cover moving to a new business facility or loss of income when your business is temporarily closed. Purchasing Business Interruption Coverage as part of your Property Insurance Policy is one way you can help to protect your business in case of a disaster and minimize any setbacks you could encounter as a result.

Here are three things you need to know about Business Interruption Insurance:

  1. What’s included in a Business Interruption Policy?
  • Compensation for loss of income if your company has to vacate the premises as a result of disaster related damage.
  • Based on your financial records, the revenue your business would have made, had the disaster not occurred, can be covered.
  • Operating expenses, like electricity, that continue even though business activities have been temporarily ceased.
  • Operational costs of a temporary location during the time the permanent facility is being repaired.

    2. What should I consider when purchasing Business Interruption Insurance?
  • Business Interruption Insurance can only be purchased if it is being added to a Property Insurance policy or included in a Business Owner’s Insurance policy.
  • After a major disaster, it can take more time than anticipated to get the business back on track. Be sure the policy limits are sufficient to cover your company for more than a couple of days.  Generally, your business must be closed for several days before coverage begins.
  • The price of the policy is related to the risk of disaster to the premises. This may be determined by the location of your business, the nature of your business and how easily your business could function at temporary location.
  1.  What is Extra Expense Insurance, and how is it related to Business Interruption Insurance?

Extra Expense insurance is designed to cover a business from expenses that it may occur while normal business operations are disrupted. These expenses are often not included in other insurance policies. Extra Expense insurance reimburses for expenses that may arise on top of normal business expenses but are not covered by Business Interruption Insurance. Types of expenses that are covered under an Extra Expense insurance policy have to be considered necessary and reasonable, such as the cost of setting up a temporary office with generators and computer equipment while the damaged office is being repaired. Extra Expense Insurance may be ample enough to provide financial relief without having to use Business Interruption Insurance, depending on the disaster.

Insurance experts estimate that Business Interruption and Extra Expense Insurance are some of the most valuable coverages available, yet are often overlooked by business owners. While property insurance is designed to only cover physical damage resulting from specific perils, Business Interruption coverage is vital in covering the loss of income while the permanent business location is being repaired.

To learn more about Business Interruption Insurance and/or Extra Expense Insurance as a solution for your business, contact your VGM Insurance Account Manager, or call 800.203.3233 or email


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