Business interruption insurance: Help protect your company from revenue loss

When an unexpected event forces your business to shut down temporarily, the loss of income can be felt in more ways than one. Sometimes, the stress and uncertainty can feel just as heavy as the financial strain. That’s where business interruption coverage comes in. It helps ease some of that pressure by offsetting your lost income when direct physical damage caused by a covered loss stops your business from running normally, so extra expenses take less of a toll.

Learn what’s covered, what’s excluded and how this essential insurance could help keep your business afloat during a temporary slowdown or shutdown.

Business interruption insurance (also called business income insurance or loss of income insurance) is commercial coverage designed to provide financial support during a defined recovery period when your business experiences operational downtime due to a covered loss. It can make a difficult situation a little more manageable.

At Desjardins, coverage for lost business and rental income is based on your financial records, whereas other insurers may only offer a fixed amount that may not cover your total expenses.

Business interruption coverage isn’t usually sold as a standalone policy. It’s typically an add-on to a commercial property insurance policy.

For business interruption insurance to apply, you must have experienced property damage caused by a covered loss. In other words, the business interruption (forced closure) has to be the result of direct property damage caused by an event that’ included in your policy. Without a covered loss, business interruption insurance doesn’t apply.

It would be stressful and disruptive if you had to shutter your business temporarily. You’d have to navigate a lot of uncertainty while still dealing with immediate financial challenges. That’s where business interruption insurance could help you stay afloat by covering key expenses, including:

• Lost income related to business operations
• Lost rental income
• Day-to-day expenses, such as rent and taxes
• Utilities (electricity, heat, phone, internet)
• Mortgage payments
• Salaries of key staff

Business interruption insurance is a key part of your company’s risk management strategy. It protects your business when a covered event causes physical damage that forces a temporary shutdown or move to a temporary location. Typical triggers include fire and certain kinds of water damage.

Coverage applies only when there is direct physical damage from a covered event. Eligible causes may include property damage, equipment breakdown or a government-ordered closure following a major fire, flood, wildfire, structural collapse, chemical spill or gas leak. However, it’s important to note that business interruption insurance excludes pandemic-related closure.

The indemnity period is the length of time a policy will cover lost business income and ongoing expenses after a covered event. This support usually lasts up to 12 months with options to extend to 18 or even 24 months to give your business more time to bounce back.

As with all insurance contracts, business interruption coverage identifies exclusions that business owners should be aware of before a claim situation arises. It’s important to understand them so there are no surprises, since claims can be denied if a situation isn’t covered. Many learned during the COVID-19 shutdown that pandemics, virus outbreaks and communicable diseases aren’t covered.

Other exclusions:

• Losses resulting from a strike, labour dispute or work stoppage, whether on your premises or nearby
• Contract and lease termination, even if those actions negatively impact revenue
• Any penalties, fines or damages for non-performance of a contract
• Bankruptcy of suppliers or vendors leading to financial losses
• Closure due to owner’s illness and inability to work.

Also keep in mind that you’d need to buy specific coverage for:

• Damage caused by certain natural disasters, such as floods or earthquakes
• Loss of income due to cyber risk incidents such as data breaches, ransomware attacks, system outages or network failure

Understanding the main types of business insurance coverage is essential to make sure your business is protected against unexpected risks and operational disruptions.

When it comes to how much business interruption insurance costs, there is no one-size-fits-all answer. Basic business interruption coverage is often included in a commercial insurance package, and overall business insurance costs can vary widely, depending on the type of coverage and business profile.

Factors that influence the cost of a business interruption insurance policy include:

• Business size
• Industry
• Revenue
• Location
• Risk profile
• Policy limits

It’s important to carefully follow each step of the claims process. To maximize your chances of receiving the full amount you’re entitled to, make sure you provide complete and accurate information, along with all required supporting documents and requested paperwork.

Here are 3 helpful tips to make a stressful period a little easier:

1. Make sure your accounting is organized and up to date (books, financial statements, order records).

2. Keep all invoices related to the extra expenses you incur because of the covered loss.

3. Work with an experienced accountant who is familiar with insurance claims.  

Business interruption insurance, often included in a commercial property policy or available as an add-on, helps keep your business financially stable when a covered event disrupts operations. It helps replace lost business income, cover ongoing operating expenses and, most importantly, it helps you retain employees, protect customer relationships and preserve your brand reputation while operations are being restored.

Finally, it’s important to take the time to speak with your insurance provider to carefully assess your needs and ensure you have the right coverage in place to protect your business from financial losses that could jeopardize its survival.

Get a quote or review your current coverage to help keep your business running smoothly.

Learn more

Damage insurance products are underwritten and distributed by Desjardins General Insurance Inc., provider of automobile, property and business insurance. The information on this page is provided for informational purposes only. The terms and conditions of the coverages described are set out in the insurance policy, which always prevails. Certain conditions, limitations and exclusions may apply.