California Business Interruption Insurance

COVID-19 SBDC Resource Guide

What is Business Interruption Insurance?

Business interruption insurance is insurance coverage that replaces business income lost in a disaster. The event could be, for example, a fire or a natural disaster. Business interruption insurance is not sold as a separate policy but is either added to a property/casualty policy or included in a comprehensive package policy as an add-on or rider.

Understanding Business Interruption Insurance

  • Business interruption insurance is insurance coverage that replaces income lost in the event that business is halted for some reason, such as a natural disaster.
  • This type of insurance also covers operating expenses, a move to a temporary location if necessary, payroll, taxes, and loan payments.
  • Business interruption insurance also applies if government actions cause operations to cease temporarily, which results in a loss for a firm.

What Business Interruption Insurance Covers

  • Profits. Based on prior months' performance, a policy will provide reimbursement for profits that would have been earned had the event not occurred.
  • Fixed costs. These can include operating expenses and other incurred costs of doing business.
  • Temporary location. Some policies cover the costs involved with moving to and operating from a temporary business location.
  • Commission and training cost. In the wake of a business interruption event, a company will often need to replace machinery and retrain personnel on how to use the new machinery.
  • Business interruption insurance may cover these costs.
  • Extra expenses. Business interruption insurance will provide reimbursement for reasonable expenses (beyond the fixed costs) that allow the business to continue operating while the business gets back on solid footing.
  • Civil authority ingress/egress. A business interruption event may result in government-mandated closure of business premises that directly cause financial loss. Examples include forced closures because of government-issued curfews or street closures related to a covered event.
  • Employee wages. Coverage of wages is essential if a business does not want to lose employees while shutting down. This coverage can help a business owner make payroll when they cannot operate.
  • Taxes. Businesses are still required to pay taxes, even when disaster hits. Tax coverage will ensure a business can pay taxes on time and avoid penalties.
  • Loan payments. Loan payments are often due monthly. Business Interruption coverage can help a business make those payments even when they are not generating income.

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You can furthermore find
here, a COVID-19 SBDC resource guide for businesses and employers to help during this difficult time.