Business interruption insurance is designed to protect defined financial results when an insured event disrupts trading. It usually works alongside material-damage cover rather than responding to every cause of lost income.
Depending on the basis selected, the policy may cover loss of gross profit, revenue, rent or additional expenditure. Accountants and insurers can use specific definitions that differ from ordinary management accounts.
The indemnity period matters
This is the maximum period for which the policy can respond after the damage, subject to the wording. It should allow for investigation, planning, rebuilding, equipment replacement, staff recovery and the time needed to win customers back.
Common misunderstandings
The sum insured is not simply annual turnover, and reopening the premises does not necessarily end the loss. Conversely, disruption caused by an uninsured event may not trigger the section at all.
A realistic calculation should use financial records and a severe but plausible recovery scenario. This often requires input from the business, accountant and insurance adviser.