Last updated : August 2025
Running a business comes with inherent risks, including unexpected disruptions that can halt operations and severely affect revenue. Whether due to a fire, natural disaster, or other insured event, the financial impact of such interruptions can prove devastating. Business interruption insurance exists to address this very issue. It helps cover lost income and additional expenses incurred when your business cannot operate as usual. But for businesses in Ontario, is this coverage worth the investment?
Here, we explore the importance of business interruption insurance, how it works, what it covers, and whether it belongs in your business’s risk management strategy.
Business interruption insurance—often called business income insurance—is a form of commercial coverage designed to provide financial support to businesses that face a temporary shutdown due to physical damage from an insured peril. While commercial property insurance pays for the repair or replacement of damaged property, it does not compensate for lost income during the downtime. Business interruption insurance fills that gap.
Imagine a fire damaging your premises. While your property insurer may pay for structural repairs, your income loss during the closure remains uncovered unless you have this protection in place. Business interruption insurance ensures your business can continue paying its bills, compensating employees, and meeting financial obligations until normal operations resume.
Business interruption insurance typically includes the following key components:
Lost Net Income
This covers the profits your business would have earned had the interruption not occurred. Insurers often calculate this based on historical financial records, including prior income statements and tax returns.
Ongoing Operating Expenses
Even if your business temporarily shuts down, certain expenses continue. These may include rent or mortgage payments, employee wages (particularly for key staff), utility bills, and loan repayments. The insurance helps ensure these obligations are met.
Temporary Relocation Costs
If your premises become unusable and you must move to a temporary location, the policy may cover relocation expenses and the cost of operating from the new site.
Extra Expenses
To minimize downtime and resume operations quickly, your business might incur additional costs—such as renting temporary equipment, securing IT systems, or launching marketing campaigns. These reasonable expenses can fall under the policy coverage.
Without this type of insurance, many businesses find it difficult to recover from a sudden loss of income. In worst-case scenarios, a temporary closure can evolve into permanent shutdown.
Business interruption coverage only activates following a covered peril that causes direct physical damage to your property. Common examples include:
Fire and smoke damage
Windstorms or hail
Lightning strikes
Explosions
Burst pipes or certain types of water damage
Vandalism or theft
Falling objects (e.g., tree damage)
The policy may also offer civil authority coverage, which applies when government-mandated closures prevent access to your premises due to nearby property damage from a covered peril.
Not all losses qualify for business interruption insurance. It’s essential to understand what your policy excludes:
Uninsured Property Damage
If the damage originates from a peril excluded under your primary commercial property insurance (such as flood or earthquake, unless specifically endorsed), the business interruption coverage does not apply.
Pandemics and Government Shutdowns
Most standard policies do not cover business interruptions caused by pandemics or government orders unrelated to physical property damage.
Economic Downturns
Business losses due to market conditions or reduced consumer demand fall outside the scope of this insurance.
Always review your policy details, including endorsements and exclusions, with an insurance advisor to ensure appropriate coverage for your specific risks.
Any Ontario-based business that relies on a physical location to generate revenue can benefit from this insurance. Sectors that typically face significant risks include:
Retail shops and restaurants: Heavily dependent on foot traffic and in-person sales
Manufacturing facilities: Downtime in production can result in lost contracts and revenue
Professional services: Clinics, law firms, and salons operating from office spaces
Hospitality and tourism: Hotels and event venues directly suffer when closed
Logistics and warehousing: Disruptions can halt supply chain operations
Even online businesses may need coverage if they rely on physical infrastructure such as servers, inventory, or offices.
Premiums for business interruption insurance vary based on several factors, including:
Industry risk profile
Revenue and payroll size
Location and exposure to hazards
Duration of coverage (restoration period)
Chosen policy limits and endorsements
Often bundled within a Business Owner’s Policy (BOP) or commercial insurance package, this coverage adds to your total premium. However, the return on investment can be substantial. For example, a small restaurant affected by a kitchen fire may face months without revenue. Without insurance, the owner must cover ongoing expenses and reconstruction costs out of pocket.
By absorbing financial shocks, business interruption insurance acts as a safety net. It allows businesses to retain staff, maintain relationships with suppliers, and avoid falling into debt during recovery. In many cases, it determines whether a business reopens—or closes permanently.
At Begin Insurance, we help businesses find the best commercial insurance by comparing the rates and coverages of top insurance providers in Canada. If you are confused about which type of insurance will be best for your company or whether you should extend your existing insurance, we can help you make an informed decision by evaluating your budget, business risks, profits and other influential factors.
Whether you own a commercial space or run your business from home, our insurance brokers can help you select the correct business insurance. We can help you get coverage for the building, your inventory, equipment, your actions and your employees, including lawsuits.
Posted Apr 28, 2019