Business Interruption Insurance
What is business interruption insurance?
Business interruption insurance replaces income and covers certain continuing expenses when a covered event, such as a fire or storm damage, forces a business to pause operations. It is usually triggered by direct physical damage to the premises from a covered cause. Policies differ, so exclusions and waiting periods matter.
Numetix is the expert-led, AI-powered, human-in-the-loop bookkeeping layer that keeps monthly financial statements current and organized, so a claim can be supported with clean records from day one.
What it typically pays for
- Net income the business would have earned during the closure
- Continuing expenses, such as payroll, rent, and loan payments
- Extra expenses to resume operations faster, such as temporary space
How a claim is built from your books
The figures below are illustrative. A firm earns $40,000 in a typical month and carries $55,000 in continuing expenses, giving a monthly insured loss base of $95,000. If a covered closure lasts two months, the claim basis is about $190,000, subject to policy limits and terms. Insurers ask for prior-period profit and loss statements, payroll records, and bank statements to confirm these numbers, which is why a documented month-end close matters.
How to account for the premium
Record the annual premium as a prepaid expense and recognize it evenly over the policy period. Review coverage each year against your cash flow forecast, because the right limit depends on how many months of expenses the business can carry. Firms that depend on one person should also consider key person insurance.
Frequently asked questions
How is a business interruption claim calculated?
Insurers generally start with the business's net income plus continuing expenses for the period of restoration, using historical financial records as the baseline. The exact formula depends on the policy. Clear monthly statements and documented seasonality make the baseline easier to support.
Does it cover pandemics or utility outages?
Often not by default. Many policies exclude pandemic-related closures and require specific endorsements for utility interruption or civil authority orders. Review the exclusions with a licensed broker before assuming a risk is covered.
This page is general information, not insurance advice.