What is business interruption insurance?

This article is provided by Simply Business

Business interruption insurance can be a lifeline for businesses, protecting your income if a disaster stops you trading. However, it’s often misunderstood, so we’ve put together a quick guide.

The basics of business interruption insurance
If your business was affected by a fire or a flood, your business buildings insurance could cover the cost of repairing or rebuilding your business premises. If your equipment or tools were stolen, your business equipment and tools insurance could pay for their replacement.

But what about the knock-on effects of these events? If it’s hit by fire, flood, theft, or vandalism, your business may be hampered for a while, or even unable to trade entirely. Clearly, this could have a really big impact on your income.

This is where business interruption insurance comes in. If your business’ turnover is affected by a risk that you’re insured against, your business interruption insurance can cover the ‘consequential loss.’ Consequential loss is an indirect loss caused by the insured event - for example the loss of earnings caused by a fire at your premises.

Example of a business interruption claim
You run a cafe, which is flooded after heavy rain. Your business buildings and contents insurance steps in to cover the cost of repairing the damage, but drying out your shop and completing the repairs takes a number of months. During this time, you have to keep the cafe closed, which means you’re not taking any money. Your business interruption insurance covers your lost income for the period that the cafe is shut.

Loss of revenue and additional expenses
There are different types of business interruption insurance. ‘Loss of revenue’ (also called loss of income) can cover a fall in your turnover, while ‘additional expenses’ can cover extra costs that you incur to keep your business running after it’s been damaged.

If you add loss of revenue business interruption cover to your policy, your level of cover will usually match your annual turnover, so for example you may be covered up to £50,000 if you told the insurer your annual turnover was £50,000. You can usually choose your level of additional expenses cover, based on how much you think it could cost to keep your business running in the event of a disaster.

What business interruption doesn’t cover
It’s important to understand that your business interruption insurance will only cover insured events. So if you lose income because your tools are stolen, your income will only be covered if you have insurance that covers your tools in the event of theft and business interruption insurance.

And if your business can’t trade for another reason - for example you or a key member of staff falls ill - your business interruption insurance won’t be able to help. Read your policy documents carefully to understand what’s covered and what’s not.

This article is provided by Simply Business