Business interruption cover

What it means

This cover pays what property insurance does not: lost profit and the fixed costs that run on while the company cannot operate after a loss.

The payout attaches to physical damage under the main policy and to the agreed indemnity period, the time over which the insurer covers the loss. It is chosen by how long recovery takes.

The cover does not pay for every drop in revenue. Losing a customer, falling demand or a strike are not covered at all, and a stoppage caused by a fire at a key subcontractor only if a specific supplier-dependency extension has been agreed. A company that relies on one critical supplier should ask for that extension explicitly.

How it works in practice

The amount is calculated from the financial statements: revenue, variable costs, wages, rent. The quality of the bookkeeping therefore decides directly how much the company receives.

It pairs with a recovery plan: what restarts first, where production runs temporarily, who talks to customers. A policy does not restart operations; it funds the period when they stand still.

The sum insured derives from the annual insured gross profit, broadly revenue less variable costs. At renewal we help the client derive it from the latest income statement and next year’s plan, so it reflects the company’s size today rather than a figure from three years ago.

What to watch out for

A three-month indemnity period looks cheap, but production built on imported machinery will not be back in three months. The cover then ends exactly when the money is needed most.

Policies often carry a time excess: the first days after a loss are not paid. A short stoppage may therefore bring no payout at all, leaving the company to carry the costs. Compare the length of the waiting period with how many days the business can run on its own cash.