Business interruption pays for the trading a business loses while it cannot trade. It is the cover that decides whether a firm survives a serious loss, and it is the one most often bought with two numbers that were guessed.
It follows insured damage, not bad luck
Standard business interruption is triggered by damage that the property section of the policy covers: a fire, a flood, an escape of water, an impact. It does not respond to a downturn, a lost contract, a supplier simply stopping, or a closure with no damage behind it, unless a specific extension says so. That link to physical damage is the single most misunderstood feature of the cover and the reason many claims are declined.
The indemnity period is the decisive number
The indemnity period is how long the policy will keep paying, running from the date of the damage. Twelve months is the common default and is frequently too short: it has to cover finding temporary premises, planning consent if needed, rebuilding, refitting, replacing specialist equipment with a long lead time, and then winning back the trade that went elsewhere. Twenty four or thirty six months is realistic for many businesses, and the extra cost is modest relative to the risk.
Gross profit is not the accountant's gross profit
The sum insured is usually the insurance definition of gross profit: turnover less specified variable costs that genuinely stop when trading stops. It is normally larger than the figure in the accounts, because wages, rent and most overheads continue. Getting it wrong triggers average and reduces every claim proportionally, and it should be projected forward over the indemnity period rather than taken from last year's accounts.
The extensions that cover what damage does not
Denial of access where a neighbouring incident blocks the premises, failure of utilities, damage at a key supplier or customer, and loss of attraction where the area around you is affected are all named extensions rather than assumptions. Additional increased cost of working funds keeping the business going, which for some firms matters more than the lost profit itself. A business that depends on one supplier or one machine should ask for the extension that names it.
Questions people ask about business interruption insurance
What triggers business interruption cover?
Damage the property section covers, such as fire or flood. A downturn, a lost contract or a closure with no damage behind it is outside it unless an extension says otherwise.
How long should the indemnity period be?
Long enough for temporary premises, rebuilding, replacing long lead time equipment and winning back trade. Twelve months is often too short.
Is the gross profit figure the same as in my accounts?
No. The insurance definition deducts only costs that genuinely stop, so it is usually larger, and it should be projected across the indemnity period.