Business interruption cover and what it pays

Aug 29
3 min read

Updated: 2 days ago

Introduction

A flood makes premises unusable for seven months. The building and contents claims are settled and the business is rebuilt. It closes anyway, because there was no income for seven months while the overheads continued.

Physical damage is the visible loss and the recoverable one. The invisible loss is the trading that did not happen, and it is what actually destroys businesses after an incident. Business interruption cover exists for exactly this and is the section owners understand least and set most carelessly. The building can be rebuilt; the customers who went elsewhere during those months frequently cannot be.

1. Business interruption cover and what it pays is about income, not property

Understand the separation.

Property cover replaces what was damaged. Interruption cover replaces the gross profit you would have earned during the period you could not trade normally, plus the additional costs of keeping going.

2. Set the indemnity period realistically

The most consequential setting.

This is the maximum period for which the policy will pay, and twelve months is the common default. Consider honestly how long it would take to find alternative premises, rebuild, replace specialist equipment and get customers back — for many businesses that is well over a year. Specialist equipment and planning consents alone can consume most of the first twelve months. That default was not chosen for your business; it is simply what the policy came with.

3. Remember recovery continues after you reopen

Where the twelve-month default fails.

Trading does not return to normal on the day the doors reopen; customers have gone elsewhere and come back gradually. The indemnity period needs to cover the recovery, not only the closure.

4. Calculate the sum insured on the right basis

Not turnover and not net profit.

These policies generally work on gross profit as the policy defines it, which is a specific calculation rather than the accounting term. Getting the basis wrong produces underinsurance in the same proportionate way as property cover.

5. Include the additional costs of working

Frequently the most useful part.

Temporary premises, hired equipment, overtime, subcontracting work out and additional transport. Spending on these keeps customers and reduces the overall loss, which is why policies fund them.

6. Consider the events that stop you trading without damaging you

Increasingly relevant.

Loss of access, a supplier's failure, damage to a neighbouring property, or a utility failure can halt trading without touching your premises. Standard policies frequently exclude these unless specifically extended.

7. Understand the exclusions clearly

Especially after recent years.

Cover for infectious disease, denial of access and similar causes varies substantially and has been extensively tightened. Whatever you believe about your policy on these points, read the current wording rather than relying on what it once said.

8. Keep financial records off the premises

Practical and essential.

Proving what you would have earned requires accounts, management figures and records. A business whose only copies burned with the building faces a claim it cannot substantiate.

9. Review the figures every year

Growth invalidates old settings quietly.

The sum insured and the indemnity period should reflect the business as it now is. A figure set when turnover was half its current level provides half the protection, and nothing draws attention to it.

Think about what a realistic recovery would actually involve for your business specifically — specialist equipment with long lead times, a licence that must be reapplied for, staff who cannot be retained through a closure. Those details are what determine the indemnity period, and they differ enormously between businesses that look similar on paper.

Conclusion

Treat this as the cover that decides whether the business survives an incident rather than as an add-on.

Set the indemnity period against a realistic rebuild and recovery, remember that trading returns gradually after reopening, calculate the sum insured on the policy's definition of gross profit, include additional costs of working, consider extensions for loss of access and supplier failure, read the current exclusions rather than relying on memory, keep financial records off the premises, and review the figures annually.