Business Interruption Insurance
Business interruption insurance covers loss of revenue / profit or rent which a business suffers after an insured incident.
A property/material damage insurance policy only covers the physical damage to the business, whereas business interruption policy covers the income that would have been earned were it not for the insured incident.
Business Interruption insurance is applicable to all types of business. It is designed to put a business in the same financial position it would have been in had no loss occurred.
Nowadays this type of coverage is not sold as a stand-alone policy, but on the back of a business’ property/material damage insurance policy or as part of a package or combined business policy.
Generally there has to be damage covered under the property/material damage section/policy for the business interruption insurance to trigger.
The following are typically covered under a business interruption insurance policy:
- Revenue/Profits – Income which would have been earned (based on prior months’ and projected financial statements);
- Fixed Costs – Operating expenses and other costs still being incurred by the property (based on historical costs) such as salaries, rents and other standing charges;
- Increased Cost of Working / Extra Expenses – Reimbursement for reasonable expenses (beyond the fixed costs) that allow the business to continue operation while the property is being repaired, such as temporary premises, additional staff costs etc.
Cover extends until the end of the Indemnity Period, usually being set at 12, 18, 24 or 36 months. Most insurance policies define this coverage period as starting on the date of the covered peril until either the income has returned to what it would have been had the incident not occurred or the expiry of the Indemnity Period, which is the later.
- Additional Increased Cost of Working
- Public Utilities & Telecoms
- Denial of Access due to damage in the vicinity
- Denial of Access following restriction by Public Authority
- Damage at Customers’ premises
- Damage at Suppliers’ premises
- Loss of Attraction
- Research & Development