Business Interruption is a form of insurance that helps with financial losses after physical damage or loss. Sometimes the unexpected can happen and it has a major impact on your business and finances. It is generally purchased alongside other insurance types such as Property Owners, which take care of the physical loss, where Business Interruption will step in to replace lost revenue or profit so that your business can get back to normal.

What does it cover?

Business Interruption has two sections:

• Increased Cost of Working: This section of cover does exactly what it says. It reimburses your business for increased costs and expenditures in the event of a claim that are necessary to allow your business to continue operating. A good example of this would be if your offices were destroyed in a fire and working from home wasn’t an option due to client meetings. Increased cost cover would cover the fees for renting alternative office space until your premises are restored. Another example would be for a tradesman who lost his equipment, it would allow them to lease equipment to continue work without missing deadlines until new equipment is sourced.
• Loss of Income: this section of business interruption cover allows businesses to recoup the physical income lost due to a claim. An example of this would be a retail shop. If the shop was flooded for several days and unable to open, the business would be unable to generate income and sell its products. Loss of income would allow them to increase their incomes that are generated to what it would have generated if it hadn’t been forced to close.

Who needs it?

There are a number of factors that will determine whether a business should have business interruption cover, but it primarily comes down to whether or not substantial damage inflicted on the businesses premises would affect its ability to trade for any sustained period of time.

For a lot of businesses the answer to this is yes, losing its property or equipment would have a big impact on its ability to operate. For some companies however it may be less appropriate, for example, in the event of a flood, a sole trader who relies only on a laptop and an internet connection to work would have little trouble finding a replacement machine and temporary premises from which to operate.

What is the indemnity period?

This is the period of insurance for which the businesses earnings are covered in the event of a claim. The options are generally 12, 24 and 36 months, starting from the date of the claim incident.

When choosing an indemnity period, it is important to consider the maximum amount of time it would realistically take for your business to be able to trade again, taking into account factors such as how long it would take to rebuild damaged buildings and replace lost stock and equipment. Therefore, it is arguably best to have an over generous indemnity period, rather than one that may fall short.

Special Considerations for Business Interruption Insurance

Note that the insurer is only obligated to pay if the insured actually sustained a loss as a result of the interruption. The amount that will be recouped by the business will not exceed the limit stated in the policy making it important for these figures to be accurate.