Business interruption insurance

Business interruption cover replaces the income you lose while you cannot trade after an insured event. It is the cover that decides whether a business reopens after a fire or a flood, and it is also the one most commonly set wrong — not by being absent, but by having an indemnity period far shorter than a real recovery takes.

The indemnity period is the whole decision

The indemnity period is how long the policy will keep paying. Twelve months is the common default and it is frequently too short. Consider what actually has to happen after a serious fire: the site is made safe, loss adjusters attend, insurers agree the claim, you obtain planning or landlord consent where needed, the unit is stripped and rebuilt, the fit-out is replaced, equipment is re-ordered on current lead times, staff are re-recruited, and then trade has to rebuild to where it was. Twenty-four or thirty-six months is often more realistic.

Extensions worth having

• Denial of access — where you cannot reach your premises because of an incident next door or a cordon.
• Loss of utilities — where a failure of supply stops you trading.
• Supplier or customer extension — where an incident at a key supplier or customer hits your income.
• Additional increased cost of working — the money spent trading from somewhere else while you recover.

How the sum insured is calculated

Business interruption is usually written on gross profit as defined by the policy, which is not the same as the gross profit in your accounts — the insurance definition typically deducts only genuinely variable costs. Getting this wrong is a common route to underinsurance, and average clauses apply here as they do to contents. If your turnover has grown since you last set it, it is almost certainly out of date.