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How business interruption cover is triggered
Most standard BI policies require an underlying material damage event — a fire, flood, or physical damage to property — that is itself covered under a separate buildings or contents policy. The BI element then activates to cover the financial consequences of that interruption. Standalone extensions can sometimes cover supply-chain disruption, utilities failure, or loss of access due to damage at a neighbouring property, but these are typically add-ons and the wording varies significantly between insurers.
The indemnity period and why it matters
The indemnity period is the maximum duration for which the insurer will pay. A 12-month indemnity period is common, but it may be wholly inadequate if your premises require substantial rebuilding or your specialist equipment has a long lead time. If your business would take 18 or 24 months to return to normal trading after a major loss, your indemnity period should reflect that. Underestimating this figure is one of the most common and costly errors in BI insurance.
Calculating the right sum insured
The sum insured for BI purposes is typically based on your annual gross profit — broadly, turnover less variable costs that would cease if trading stopped. Fixed costs (rent, loan repayments, staff salaries you intend to retain) continue regardless of whether you are trading, so the BI policy needs to cover them. If your gross profit is understated at inception, you risk being underinsured and receiving a proportionally reduced settlement at claim. Review the figure annually and whenever your turnover changes materially.
BI cover and commercial loan obligations
If your business has a commercial loan secured against premises or equipment, you should confirm whether your lender requires BI cover as a loan condition. Even where it is not a stated requirement, a serious trading interruption without BI cover could impair your ability to service debt — the lender's concern and your own. Some lenders factor the absence of BI cover into their ongoing risk assessment of the facility.
Frequently asked questions
Does business interruption insurance cover a pandemic or government-ordered closure?
Most standard BI policies did not cover pandemic closures, as they required physical damage to trigger. Post-COVID, policy wordings have been scrutinised closely. Some policies now include or explicitly exclude notifiable disease extensions. Read the specific wording — do not assume cover exists without checking with your broker.
What is an 'increased cost of working' extension?
This covers extra expenditure your business incurs to maintain operations after an insured event — for example, renting temporary premises or hiring emergency equipment. It is often included within a BI policy and can significantly reduce the overall loss if it allows you to keep trading during reinstatement.
Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.