FCA authorised · FRN 7249520117 325 0027Quote & buy →
In short: Business interruption insurance covers the loss of income and continuing costs your business suffers when an insured event — typically physical damage such as fire or flood — forces you to stop or reduce trading. It aims to return your finances to the position they would have been in, paying out across an agreed indemnity period until you recover.
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Reviewed by Apex Insurance Brokers · Last reviewed 2026-08-05
Property insurance rebuilds the walls and replaces the stock. It does nothing for the weeks or months when the doors are shut and no money is coming in. Business interruption (BI) insurance — sometimes called loss of profits cover — fills that gap. It sits alongside your property or commercial combined policy and responds to the financial fallout of the same insured event.
BI cover is almost always triggered by physical damage to insured property from a peril covered under your policy — fire, flood, storm, escape of water or impact, for example. The damage must interrupt or interfere with your business. Once triggered, the policy responds in three main ways:
The principle is indemnity: the insurer aims to put you back in the financial position you would have occupied without the loss — no better, no worse. That is why an accurate claim relies on good accounting records showing what the business was earning before the interruption.
Standard BI cover follows physical damage. Many policies also offer extensions for interruptions that originate elsewhere — damage at a supplier or customer's premises, denial of access following an incident nearby, or failure of public utilities. These extensions vary widely between insurers and usually carry their own sub-limits, so it is worth checking the wording rather than assuming they are included.
The indemnity period is the maximum length of time the policy will pay for your loss, running from the date of the damage. It is one of the most misunderstood — and most commonly underset — parts of a BI policy.
Many businesses default to 12 months. In practice, full recovery often takes far longer. Consider what actually has to happen after a serious fire: clearing the site, obtaining planning consent and rebuilding, refitting, replacing specialist equipment with long lead times, re-recruiting staff, and then rebuilding a customer base that has drifted to competitors. A realistic indemnity period for many businesses is 24 or 36 months.
The indemnity period should reflect how long it would take your business to return to its pre-loss trading position — not just how long the physical rebuild takes. If you choose too short a period, cover simply stops even though you are still recovering, and you carry the rest of the loss yourself.
The sum insured is the amount the insurer will pay, up to. For BI it is normally based on gross profit as defined in the policy — which is not the same as the gross profit line in your accounts. The insurance definition is broadly turnover minus a limited list of purely variable costs, so it typically includes wages and other overheads that continue during a shutdown.
Getting this figure wrong is the single most common BI mistake. Two adjustments matter most:
Under-insurance can trigger the condition of average, where the insurer reduces a claim payment in proportion to the shortfall. Insure for half of what you should, and a claim may be cut by half — exactly when the business can least afford it.
Two common ways to structure BI cover:
| Basis | How it works |
|---|---|
| Fixed sum insured | You set a specific gross profit figure. Simple, but exposed to average if the figure is too low. |
| Declaration-linked | You give an estimated gross profit; the insurer typically adds an uplift (often 33.3%) as headroom. You declare actual figures at renewal and average is usually waived, reducing under-insurance risk. |
Declaration-linked cover is a popular choice precisely because it softens the impact of getting the estimate slightly wrong. Which basis suits you depends on how predictable your turnover is and how comfortable you are managing the sum insured yourself. A broker can walk through both with your figures — start a quote here and we will help you decide.
Any business with premises, stock, equipment or staff whose income would fall if it could not trade normally should consider BI cover. That includes retailers, manufacturers, restaurants, offices and professional practices. Businesses with a single site or specialist equipment are especially exposed, because they have no easy way to keep trading elsewhere.
BI does not cover everything. It generally will not respond to losses with no underlying insured physical damage unless a specific extension applies, to a downturn caused purely by market conditions, or to perils excluded elsewhere in the policy. Cover for events such as infectious disease or non-damage business interruption is narrow and highly wording-dependent — always read the specific terms rather than assuming.
Is business interruption insurance a legal requirement?
No. Unlike employers' liability, BI cover is not compulsory. It is, however, strongly advisable for any business that could not absorb an extended loss of income after damage to its premises.
How long should my indemnity period be?
Long enough to fully recover your pre-loss trading position — not just rebuild. For many businesses that means 24 or 36 months rather than the default 12, once planning, refitting, re-equipping and winning back customers are all factored in.
What is the difference between the sum insured and the indemnity period?
The indemnity period is how long cover pays out; the sum insured is the maximum amount it will pay. They must be set together — a two-year indemnity period needs a sum insured covering roughly two years of gross profit.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This guide is general information, not advice on a specific policy or a substitute for your policy wording.
