Business Income Insurance restores the Net Earnings (income) that the business would normally earn and continues to pay the normal Operating Expenses, such as Payroll and others, while your operations are suspended by direct physical damage to its property from a covered cause of loss. This can be thought of as Disability Income Protection for your business. The Property Policy will restore or replace damaged buildings, and Business Income Coverage will keep the financial operation of the company going until you reopen. Business Income Coverage applies throughout the Period of Restoration, which currently starts at the time of damage on an ISO Form and ends at the reasonable time to repair the damaged property.
This is an explanation of how the most commonly used version of this type of insurance coverage (the ISO Business Income (And Extra Expense) Coverage Form, or CP 00 30) functions.
Business Income Insurance
Business income insurance replaces net income a business would normally earn and pays normal operating expenses, including payroll, that continue while operations are suspended by direct physical damage from a covered cause of loss. Coverage runs through the period of restoration.
What is business income insurance and why does it matter?
Business income coverage puts a business in the same position it would be in if the loss had never happened. After a disaster damages a business's property, the other half of the financial loss isn't the cost of fixing it, but rather when revenue stops or slows while fixed costs like rent, loan payments, salary for key employees and taxes continue to arrive. Business income (often called business interruption) insurance addresses this "gap".
Most business owners go without business interruption insurance. According to the National Association of Insurance Commissioners (NAIC) only 30 to 40 percent of small business owners have business interruption insurance.[1] The gap matters because FEMA reports 40 percent of companies never reopen after being hit with a disaster.[2] When considering time related losses for commercial clients in regards to disasters they can be difficult to visualize and therefore are the most commonly missing piece of otherwise solid commercial programs.
What does business interruption insurance cover?
Business interruption insurance covers actual income you lose during the period of restoration plus extra costs to keep business running. Under CP 00 30, business income equals:
- Net income: profit or loss before income tax that would have happened, and
- Continuing normal operating expenses: which includes payroll.
Note the 'loss' in this definition. In other words, a business that was operating at a loss can still recover, because the policy pays continuing expenses minus the net loss, leaving the insured where it would have been. The manufacturer's net income will include the net sales value of production lost due to the shutdown.
The three (3) requirements governing coverage are listed below.
- A suspension of operations, i.e., a slowdown or cessation of business activities (operations do not have to completely cease).
- Caused by direct physical loss or damage at the described premises from a "covered cause of loss," typically the same causes-of-loss type as your commercial property coverage.
- Loss sustained during the period of restoration.
How does the period of restoration work?
The Period of Restoration is the foundation of all forms. In the current ISO Edition (CP 00 30 10 12), the period begins as soon as there has been a direct physical loss to the insured premises for Business Income Coverage, and, as soon as there has been a loss for Extra Expense Coverage. The period ends on the earlier of the date the property should be repaired, rebuilt, or replaced with reasonable speed and similar quality, or the date business resumes at a new permanent location.
"Should be" is important. Not making the effort to make repairs does not extend the coverage clock, and the time left to complete repairs cannot be shortened when the insurance company's contract expires. The editions prior to 2012 of the Business Income form included a 72 hour delay for business income, while the Beginning Of The Period Of Restoration (CP 15 56) endorsement continues to govern when the coverage will begin. If an insurance contract includes a 72 hour delay, this endorsement can reduce that delay to 24 hours or eliminate the delay. For businesses where even a two day closure is expensive, this is a cheap thing to confirm.
What is extra expense coverage?
"Extra expense" refers to the additional expenses you will need to pay for in order to continue your business while you restore after an occurrence. You would not have these types of expenses if there was no loss: moving into temporary rental space, furnishing/setting up your new or replacement location, relocating, paying employees overtime. The CP 00 30 policy provides extra expense coverage even when restoring your operations does not decrease your overall loss. Expenses to repair or replace damaged or lost property (including equipment) are covered only to the extent they reduce your business income loss. This type of insurance has one combined limit with other coverages provided by the declarations page and coinsurance does not apply to it.
Some businesses may have to remain open, e.g. hospitals, law firms, insurance agencies, newspapers. In these cases their loss will be almost entirely due to extra expense as opposed to lost earnings. ISO provides a separate Extra Expense Coverage Form (CP 00 50) for these types of businesses and a Business Income form without extra expense coverage (CP 00 32) for those who experience the other type of loss.
What additional coverages are built in?
The business income policy (CP 00 30), includes four additional coverages that you should know about:
| Additional coverage | What it does | Key numbers |
|---|---|---|
| Civil Authority | Pays when a government order prohibits access to your premises because of damage to other property, provided your premises sit within the prohibited area and not more than one mile from the damaged property | Business income starts 72 hours after the order, up to 4 weeks, while extra expense starts immediately |
| Alterations and New Buildings | Covers income lost when damage to a building under construction delays your opening | Period of restoration starts on the date operations would have begun |
| Extended Business Income | Keeps continuous coverage after reopening for customers trying to locate your business again | Up to 60 days from when operations are resumed. This may be extended based on an optional choice. |
| Interruption of Computer Operations | Limited give-back for suspensions caused by destruction or corruption of electronic data | $2,500 aggregate limit per year (unless you have elected to increase it). |
The Day After Repairs are Complete is Rarely a Back to Normal Day. For example, if income is still depressed after all repair work has been completed, the Extended Period of Indemnity optional coverage can extend the EBI (Extended Business Income) by 30-day intervals for up to 730 days.
How much coverage do I need, and what about coinsurance?
CP 00 30 includes a coinsurance requirement: you must purchase an amount of insurance sufficient to be no less than the stated coinsurance percentage (in Declarations) multiplied by your Net Income and Operating Expenses for the 12 months following the inception date. Failure to obtain such coverage will result in the insurer paying only a proportionate share of the total loss. Choosing the percentage is really choosing how long a worst case shutdown would last.
To determine size of limit there are 4 steps:
- Work through the financials: begin with net sales, cost of goods sold, operating expense, and net profit. The business income report/work sheet (CP 15 15), which your underwriter will ask for, shows how this is done.
- Estimate the worst-case restoration period: how many days it takes to rebuild, re-stock supplies, and re-hire employees, plus when you can expect to be back to your regular income levels after opening. Add extra time to account for permit delays, additional requirements by a building official on code changes required during construction, and contractors competing for work throughout the region as a result of the disaster.
- Separate continuing from non-continuing expenses: Rent, Insurance, Key Payroll, Loan Payments usually continue. However, some Utilities and some Ordinary Payroll will probably not. Only Continuing Expenses should be included in your estimate.
- Pick a coinsurance strategy, or opt out: Maximum Period of Indemnity will pay up to 120 days, Monthly Limit of Indemnity will cap payment amounts for each 30 day period at 1/3, 1/4, or 1/6 of the limit, and Agreed Value will suspend coinsurance for 12 months once the underwriter has received a current CP 15 15 worksheet. When you skip the renewal worksheet, coinsurance will again apply.
One exclusion is located in the definition section of the policy and does not appear on the exclusions list. The period of restoration definition specifically excludes additional time necessary to comply with an ordinance or law that regulates the construction process. As such, the extra months it may take to bring an older building up to today's codes will be uninsured unless the Ordinance Or Law Increased Period Of Restoration Endorsement (CP 15 31) is added. This coverage endorsement can be combined with the direct damage portion of the ordinance or law coverage endorsement for direct physical loss or damage to pay for the cost of upgrading to meet current building codes.
Frequently asked questions
Is business income insurance the same as business interruption insurance?
Yes, either term (the common phrase "business interruption" or the formal phrase in the ISO forms "Business Income") refers to Time Element Insurance. It measures the loss based on how long you were unable to do business.
Does my business have to shut down completely to collect?
No. The definition provided in the form indicates that "suspension" includes both a partial (reduced) level of business activity and a total cessation. Thus, a restaurant operating at only half capacity due to a kitchen fire has a covered suspension.
Does business income coverage pay if a road closure or evacuation order shuts me down?
Only if you have an Additional Coverage for Civil Authority will this additional coverage be available to you, and only in the event that the order is caused by direct physical damage to other property by a covered cause of loss. Your business premises must be located within the prohibited area but no more than one mile away from the damaged property. Payment for business income shall commence 72 hours after the order and continue for up to four weeks. The time and distance limitations can be modified by way of an Endorsement (CP 15 32).
Does the policy cover losses from a cyber attack or data corruption?
For all intents and purposes, no. Suspensions due to destruction or corruption of electronic data are excluded from this coverage type except for the small Interruption of Computer Operations give-back of $2,500 per year unless it is increased. In order to have meaningful protection for such an event, you should consider purchasing a Cyber Policy.
This guide is for educational purposes and summarizes standard ISO policy language. Your policy's specific terms, conditions, and endorsements control. Talk to a licensed broker about your actual exposures.
The Bottom Line
Business interruption insurance is designed to replace both your business's net income and continuing expenses, including payroll lost during the time that a covered shutdown limits your ability to earn money. It also pays through the period of restoration. The "period of restoration" begins immediately under the current form, or after a 72-hour wait on older editions. Once the Period of Restoration has begun, how much of a claim is paid out by the insurer depends upon the amount of the Coinsurance Percentage selected as part of your original purchase, as well as the length of time in your Extended Business Income window. Use the CP 15 15 worksheet to test your limit against a worst case rebuild before your next renewal date.
References
- 1.NAIC. “Business Interruption and Business Owner Policy.” Accessed July 2026. https://content.naic.org/insurance-topics/business-interruption-and-business-owner-policy ↩
- 2.Insurance Information Institute. “When Disaster Strikes: Preparation, Response and Recovery (citing FEMA).” Accessed July 2026. https://www.iii.org/article/when-disaster-strikes-preparation-response-and-recovery ↩