Business Interruption Insurance

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What is Business Interruption Insurance

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What is Business Interruption Insurance?

Business Interruption Insurance is an insurance policy that covers the loss of business income due to disasters, fire, or any other unfortunate event that affects business operations.

So the business interruption policy will compensate if the company is forced to close or scale down its operations and suffers any income loss. The policy provides coverage for the business interruption period as defined by the insurer in the policy document.
business interruption insurance

What are the Types of Business Interruption Insurance?

Business Income Insurance Coverage can be offered either as part of property all-risk insurance or as a standalone policy. There are primarily three types of business interruption insurance policies.

1. Loss of Gross Profit Cover : This is the most common type of business interruption coverage. It provides compensation for the loss of profits due to a reduction in sales and any increase in the cost of working after the disaster.

The definition of gross profit in relation to insurance is different from that of accounting. Certain expenses will not be incurred by the business after the disaster strikes. These are typically variable costs that change in direct proportion to sales turnover. So if sales fall by 25%, there is an equivalent 25% reduction in such costs. They are also known as uninsured working expenses (UWE). 

The objective of UWE is to not insure costs that will cease after the disaster occurs. By excluding such costs, insurance coverage can be optimized for the policyholder who benefits by paying a lesser premium.

The gross profit cover is primarily meant for businesses with high variable costs.

2. Loss of  Gross Revenue CoverBusinesses with a lower proportion of variable costs can opt for a loss of gross revenue cover for any business interruption.
This policy covers the reduction in sales and any increase in the cost of working due to a disaster. This method does not entail the difficulties of calculating the gross profit. It is sufficient to know the sales turnover to provide accurate insurance coverage.

Gross revenue cover is more suitable for service-based businesses that have fewer variable costs. But it is advisable to study the business closely before buying business revenue insurance.

3. Increased Cost of Working Cover : The increased cost of working cover compensates the business for any additional expenses that arise after the disaster. This cover is included in both the gross profit and the gross revenue loss policies with an upper limit. It can also be bought as a standalone policy with no upper limits.

This type of interruption insurance is ideal for businesses that are highly resilient and just need some extra cash to bounce back after a disaster.

What is Covered Under Business Interruption Insurance?

Business Interruption Insurance policies cover the following risk factors.

What is not covered under Business Interruption Insurance?

Business Interruption Insurance does not cover the following:

How Much Business Interruption Insurance Do I Need?

Business interruption policy has a coverage limit that specifies the maximum amount payable for the loss. The coverage limit will depend on the following factors.

Time required for the business to recover

Safety and security features in the building

Time required to shift to a temporary location

Value of the plant & machinery, and equipment

Employee wages and daily operating expenses

You can consult the experts at Prominent Insurance Brokers to structure the right business income insurance coverage. 

How Much Does Business Interruption Insurance Cost?

The premium for business interruption coverage depends on many factors:

Nature and size of the business

Industry type

Business locations

Amount of insurance coverage

Claims history of the business

Frequently Asked Questions on Business Interruption Insurance

Business Interruption Insurance protects against loss of business income due to disasters, accidents, and other unforeseen events that may lead to the closure of the business.

Business interruption insurance gets triggered when the insured event causes physical damage to the business, which results in the closure of business activities.

The business interruption coverage lasts till the end of the business interruption period as laid out in the policy. This is generally the period from the beginning of the insured event till the damaged property is brought to its original condition.


Disclaimer: The Business interruption insurance or plan may have limitations, exclusions, and other terms and conditions that may affect coverage. It is important to carefully review the policy wording before making any decision.