Business interruption insurance is the most misunderstood add-on to property insurance. Many people's expectation runs: “if we're forced to stop, the insurer will replace our lost profit.” The reality is narrower and more conditional than that – let's look at it in myth-busting mode: what it does cover, and what it doesn't.
- Business interruption cover is not a replacement for lost profit, as many hope.
- It typically covers the fixed costs incurred during the interruption (overheads, for example) and a limited, time-capped wage burden – following insured property damage.
- It only applies in connection with insured property damage: it does not apply to a stoppage caused by market conditions.
The myth and the reality
The myth: “we had to stop, so we're owed the profit we lost.” The reality: business interruption insurance only steps in when the stoppage was caused by property damage insured under the policy – for example, production stops after a fire – and even then it pays for the cost categories set out in the terms, for a defined period. In practice, this typically means the fixed costs of the period out of action – overheads tied to the building, and, depending on the policy, a limited-time wage burden for staff kept on. A market downturn, a supplier failure, or demand drying up is not a business interruption event.
Why did the myth take hold?
Because the product's name promises more than its content – and because the fear of a stoppage is real. Yet 17 years of experience shows that companies aren't actually looking for this. Not a single client has ever explicitly asked for business interruption insurance – the real need is almost always proper cover for the classic perils: fire, storm, water damage, burglary, at the right sums insured. Get the foundation solid first: if the property damage is settled well, the company already has the most important condition for getting back on its feet.
When is it still worth talking about?
If the company's operations are concentrated in a single site with a long recovery time – for example, a specialised production line that would take months to replace – the business interruption question comes up legitimately. In that case, we work through the numbers honestly: what the cover would actually give you (which costs, for how long, with what excess period), and at what cost. If the numbers don't convince you, the answer is an operational plan B: reserve capacity, the option of renting equipment, spreading risk across more than one leg – the machinery breakdown article covers this too.
The key point is the order: first put the property foundation in order – what's covered and what isn't, free of underinsurance – and only then, as a deliberate decision, the add-ons.
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