Business Interruption Insurance

Business interruption insurance covers the loss of income your business suffers when it can’t operate due to an insured event, such as a fire, storm, or flood. It can also cover ongoing expenses like rent, wages, and loan repayments during the interruption period.

Your property insurance covers the physical damage. Business interruption covers the financial impact of being shut down while you recover.

Why It Matters

• A fire or flood doesn’t just damage your premises. It stops you from earning income, sometimes for weeks or months.
• You still have to pay rent, wages, and loan repayments even when you’re not trading. BI insurance helps cover those fixed costs.
• Without it, you might be able to rebuild your premises but not survive the income gap while it happens.
• The indemnity period you choose determines how long the insurer will cover your lost income. Getting this wrong can leave you exposed.

What It Typically Covers

• Loss of gross profit - the income your business would have earned during the interruption period.
• Ongoing expenses - fixed costs like rent, lease payments, wages, and utilities that continue even when you’re not trading.
• Increased cost of working - extra expenses incurred to minimise the interruption, such as renting temporary premises or equipment.
• Additional costs - expenses related to getting your business back up and running.

Simple Examples

• A restaurant suffers a kitchen fire. It takes 4 months to repair. BI insurance covers the lost revenue and ongoing rent during the rebuild.
• A retail shop is flooded. While the premises are being repaired, the business rents a temporary pop-up space. BI covers both the lost income and the extra rent.
• A warehouse is damaged by a storm. The business can’t fulfil orders for 6 weeks. BI covers the lost profit during that period.

Common Mistakes or Misunderstandings

• Thinking property insurance is enough. Property insurance fixes the building. BI insurance replaces your income while it’s being fixed. They’re separate covers.
• Choosing too short an indemnity period. If your rebuild takes 12 months but your indemnity period is 6 months, you’re on your own for the remaining half.
• Not including increased cost of working. Temporary premises, equipment hire, and overtime can add up quickly during a recovery.
• Underestimating your gross profit. If your declared gross profit is lower than your actual earnings, the insurer may reduce your payout proportionally.

When to Speak to a Broker

If you’re not sure how long it would take to rebuild and resume normal operations after a major event, or you’re unsure what indemnity period to choose, a broker can help you model the scenario and get the right cover.

Need help?

Want to make sure your business insurance includes adequate interruption cover? Reach out to Tank Insurance and we’ll review your setup.

Related Terms

• Indemnity Period - The maximum period your BI policy will pay out for. Choosing the right indemnity period is critical.
• Underinsurance - Underestimating your gross profit or indemnity period can lead to a reduced payout.
• Insurance Premium - BI premiums are based on your gross profit, indemnity period, and the risks associated with your premises and industry.