What does Business Interruption Insurance cover?
BI insurance protects you against loss of income following damage to your business premises caused by an insured peril such as serious fire, flood or similar incident. It also pays for extra costs to keep your business going and minimise your shortfall in income; although for these to be covered they must pass an economic test, i.e. they save or bring in at least as much as it reduces any claim.
Indemnity period
The indemnity period under BI insurance is the period during which your loss of income is covered. This period of time (usually 12, 24 or 36 months) starts from the date of the claim incident.
When choosing an indemnity period, it’s important to consider the amount of time it would take for your business to be able to trade again independently considering factors, such as how long it would take to rebuild damaged buildings, and replace lost contents and stock. Therefore, it’s arguably better to have an over generous indemnity period, rather than one that might fall short.
BI Insurance sum insured
Your BI Insurance sum insured should reflect estimated income for the coming financial year. Whilst this is fine for a 12 month indemnity period, for 24 months the sum insured will be twice the estimated annual income, and for 36 months it will be three times.
Material damage proviso
The material damage proviso is a condition within BI Insurance which states that a claim must have been accepted by insurers of the damaged business premises, before the BI cover can respond. The purpose of this proviso is to ensure that in the event of a loss, funds are readily available to repair or replace property and therefore minimise the time it takes for a business to resume full trading.
Non-damage BI Insurance
There could be times when your business may suffer a loss of income caused by a situation where there is no physical damage to your premises or assets, and most BI Insurance covers make provision for circumstances of this nature.
Some common examples of this are the business being affected by:
- damage occurring at the premises of your customers or suppliers
- accidental failure of your electricity, gas, water or telecommunications supply
- prevention of access to your business premises caused by damage to neighbouring property. (Including if access to your premises is affected through actions of the authorities in connection with an incident, which could endanger human life or nearby property.)
It’s usual for these non-damage BI Insurance extensions to be insured for a set monetary limit, which will be significantly lower than your selected sum insured for loss of income.
Do I really need it?
Unlike insurance for your buildings, contents and stock, which covers physical damage, BI Insurance covers the income your business would have received had the incident not happened. For many businesses affected by a serious loss, BI Insurance can mean the difference between ensuring a long-term future and going under.
About Lansdown
Lansdown Insurance Brokers are specialists in Block of flats insurance, Vineyard insurance and Business insurance. We are able to provide flexible policies to suit individual client needs and provide advice on what cover is needed. For more information call the team on 01242 524498.