Of all the cover a small business buys, business interruption is the one most often absent and most often the difference between recovering and not.
The reason is simple. Asset cover replaces the things. It does nothing about the months during which you cannot trade — and the rent, the salaries and the loan repayments continue throughout.
What it does
It replaces income lost while the business cannot operate, for a defined period, following an insured event. Depending on the policy it also covers the extra costs of getting going again — temporary premises, hired equipment, overtime.
The mental model that helps: asset cover buys back the building and the stock; interruption cover buys back the time.
The indemnity period is the decision
This is how long the policy will keep paying, and most businesses choose it far too short because a shorter period is cheaper.
Think it through honestly. After a serious fire, how long before you are trading at the level you were? Not reopening — trading at the same level. That includes finding premises, rebuilding or fitting out, replacing equipment with whatever the lead time actually is, and winning back customers who went elsewhere in the meantime.
For many businesses the honest answer is longer than a year, and the customers-returning part is the one everybody underestimates.
Get the sum insured right
It is usually based on gross profit as the policy defines it — which is not the same as the figure in your accounts, and the difference matters. Work it out with your broker or accountant rather than estimating.
Then revise it when the business grows. A sum set three years ago on a business half the size is under-insurance, with the same proportional reduction at claim stage as anywhere else.
The extensions worth asking about
- Supplier failure — if a supplier you depend on is the one that burns down.
- Customer failure, where a single customer is a large share of revenue.
- Prevention of access — you are undamaged but cannot reach the premises.
- Utilities — an extended failure of power or water at source.
Ask which of these are included, excluded, or available. The answers vary a great deal between policies that look similar.
Keep the records you would need
An interruption claim is proved with financial records — what the business was earning before, and what it earned afterwards. If those records were in the building, the claim is much harder.
Offsite or cloud accounting is not only a convenience. It is the evidence for the largest claim you are ever likely to make.
General guidance, not insurance or financial advice. Wordings, definitions and extensions vary; take advice from a licensed broker.