Washington State Insurance Practice Exam

What is "business interruption insurance" designed to protect against?

1. Injuries sustained by employees during work hours

2. Loss of income due to halted business operations from a covered event

3. Damage to physical premises only

4. Legal liabilities arising from employee actions

The correct answer is: Loss of income due to halted business operations from a covered event

Business interruption insurance is specifically designed to protect businesses from the financial impacts of an interruption in operations due to covered events, such as natural disasters, accidents, or fires. When a business experiences a disruption, it may lose its revenue because it cannot continue normal operations. This type of insurance essentially compensates for the lost income during the time it takes to restore the business to its previous revenue-generating capacity. The focus of this insurance is not on physical damages to property alone, which is why coverage that pertains to premises damage specifically falls outside its scope. While employee injuries and legal liabilities are indeed critical aspects of the business insurance landscape, those are addressed through other types of coverage, such as workers' compensation and general liability insurance. Business interruption insurance fills an essential gap by ensuring that the business can maintain financial stability and can cover ongoing expenses, such as payroll and rent, during the restoration period following an adverse event.