What does business interruption insurance compensate for?

Business interruption insurance is designed to compensate a policyholder for lost income and additional expenses incurred as a result of a temporary halt in business operations due to physical damage to the property. This insurance typically covers scenarios where a business can no longer operate effectively because its physical premises have sustained damage, such as by fire, flooding, or severe weather conditions.

The focus is on the income that the business loses during the period of interruption, as well as any extra costs necessary to minimize the impact of the interruption. This aspect of coverage is critical for businesses that rely heavily on their physical location to generate revenue.

In contrast, standard operational losses generally fall outside the scope of business interruption insurance, as they may not be linked to a specific physical incident. Loss of market value and loss from theft are also covered by different types of insurance and do not fall under the purview of business interruption, which specifically addresses income loss due to operational halts resulting from property damage.