Indemnity period (business interruption)

~3 min read

Category: Business interruption insurance · Reviewed by the Apex broking team · Last reviewed 2026-08-20

In short: The indemnity period is the maximum time, running from the date of insured damage, for which a business interruption policy pays. It ends when the period expires whether or not the business has recovered. Choosing it means estimating the full journey back to the pre-loss trading position — demolition, planning, rebuild, refit, and then winning customers back — which is why twelve months is rarely enough and twenty-four or thirty-six months is often the realistic figure.

Category: Business interruption insurance Also known as: maximum indemnity period, MIP Related concepts: increased cost of working, business interruption insurance

Definition

The indemnity period (often maximum indemnity period) is defined in business interruption wordings as the period beginning with the damage and ending no later than a stated number of months afterwards, during which the results of the business are affected by the damage. The policy compensates loss of gross profit and increased costs of working within that window only. When the period expires, payment stops — regardless of whether turnover has returned to where it would have been.

Why recovery takes longer than rebuild

The common error is to equate the indemnity period with reconstruction time. The recovery timeline for a serious loss typically runs much longer than the build itself:

Before rebuilding starts: site clearance and investigation, insurer agreement, surveys, design, planning permission, party wall and access issues, tendering and contractor lead times. A year can pass before ground is broken.
The build and fit-out: reinstatement of the structure, then services, machinery re-installation, commissioning and regulatory sign-off. Specialist plant can carry long delivery lead times of its own.
After reopening: the part the twelve-month default ignores entirely. Customers who moved to competitors during the closure do not return on opening day. Contracts lost mid-term must be re-tendered at their next cycle. Seasonal businesses may miss a full season and wait a year for the next one. Turnover recovers on the market’s timetable, not the builder’s.

The indemnity period has to span all three phases, because the insured loss — the shortfall against what trading would have been — continues until the last of them is done.

Choosing 12, 24 or 36 months

Twelve months suits businesses that could relocate fast, hold portable customer relationships, and occupy simple premises. Twenty-four months is the sensible starting point for most established businesses with physical premises. Thirty-six months belongs to anyone with specialist or listed buildings, heavy or long-lead-time plant, planning complexity, dominant customers who would re-tender, or strong seasonality. The right way to choose is to walk through the worst realistic loss month by month and see when the trading line rejoins the no-loss line — then add a margin, because these estimates are made on a good day.

Note the sum insured interacts with the period: gross profit must be projected across the whole indemnity period (a 24-month period needs roughly two years’ gross profit insured, with growth allowed for), or declared properly under a declaration-linked policy. A longer period with an unadjusted sum insured simply relocates the underinsurance.

Why it matters

An indemnity period that expires mid-recovery converts an insured loss into an uninsured one at the exact point the business is weakest. Against that, the premium cost of extending from twelve to twenty-four months is modest, because the later months carry lower expected loss. It is one of the clearest asymmetries in commercial insurance buying.

Talk to a specialist broker

Apex Insurance Brokers serves UK professional services firms and commercial businesses. Call 0117 325 0027, email info@apexinsurancebrokers.co.uk, or request a quotation.

Get a quote