Should my small business have business income insurance?

Business income insurance (or business interruption insurance) is something a lot of people have heard of. But unlike property or liability insurance, they're not always sure about whether it's right for them or their business (learn about 4 Essential Types of Liability Insurance Every Business Should Have).

Business income insurance is insurance that kicks in to replace a loss or a decline in business after a loss. Examples really help illustrate this concept, so let's imagine you're running a restaurant and it burns down. The fire department tracks down the cause: an employee accidentally left a stove on overnight.

If you have all of your typical insurance policies in place, you would file a claim and have your restaurant fixed up and your damaged equipment replaced (find out How to File a Claim that Gets Paid Sooner). Everything would be back to normal in a few months. But what about all the fixed expenses, such as rent for the space, that you still had to pay while the damage was being repaired? And what about all the income you lost from weeks of not being able to serve any of your customers? Normally, this would all come right out of your own pocket. But if you have business income insurance, your insurance company could provide you with a monthly income to cover things like rent, staffing costs, and expediting expenses like overtime pay to get you up and running sooner.

So, who should be looking into business income insurance? The general rule is that anyone who can have their business interrupted by the loss of physical property should consider getting this type of insurance, especially if you think it will take a long time for your business to resume operations. If your business is "asset light," you might be able to forgo business income insurance. A consultant who mainly works remotely using a laptop, for example, or a software development company that relies on telecommuting or outsourcing might not need it (see Working a Freelance Job? Consider These 3 Health Insurance Options for a related discussion). Businesses like these can continue to operate even if their physical property is destroyed, giving them little use for income interruption insurance.