Glossary · UK
What is Business Interruption Insurance?
Cover that replaces lost profit and pays ongoing fixed costs when a business cannot trade normally after an insured event, such as fire or flood damage to its premises.
Full Definition
Business interruption insurance compensates a business for the financial impact of being unable to trade normally following an insured event -- most commonly fire, flood, storm damage or another peril that also triggers a claim under the business's buildings or contents insurance. Rather than covering the cost of repairing the physical damage itself (which is the job of the underlying property insurance), business interruption cover pays out for the resulting loss of income: the gross profit the business would have earned had the interruption not happened, plus ongoing fixed costs that keep being incurred even while trading is disrupted, such as rent, salaries and loan repayments, for an agreed indemnity period (commonly 12, 24 or 36 months). Cover can also extend to increased cost of working, such as the extra expense of operating from temporary premises to minimise the loss, and to notifiable disease or denial of access extensions in some policies, though the scope and wording of these extensions vary significantly between insurers and were the subject of major disputes and a landmark Supreme Court test case (the FCA business interruption insurance test case) following the Covid-19 pandemic. Because the sums insured and indemnity period need to accurately reflect the business's real financial exposure, insurers typically expect figures to be calculated with an accountant's help rather than estimated informally.