The cover that pays for the profit you did not earn while the shutters were down — how the sums work, three worked examples, and what a UK court case taught everyone about wordings.
Property insurance rebuilds the shop. Business interruption insurance replaces the money the shop would have made while it was being rebuilt. That second cover is the one small businesses skip most often, and it is the one that most often decides whether a firm survives a serious loss — because rent, salaries and loan payments do not pause while the walls dry.
If you take one thing from this guide, take this: business interruption cover is defined by two numbers you choose yourself — the sum insured and the indemnity period — and most painful claims trace back to one of those numbers being set casually at purchase time.
What the cover actually pays
A standard business interruption (BI) section pays the shortfall in your gross profit caused by an insured event, plus increased costs of working — the extra money you reasonably spend to keep trading, like renting temporary premises. Two things follow from that definition and both surprise first-time buyers.
First, BI is usually triggered by physical damage covered elsewhere in your policy. No fire, flood or covered damage generally means no BI claim, even if your revenue collapsed for some other reason. Second, gross profit in insurance means something specific — broadly, turnover minus purely variable costs — and it is not the gross profit line your accountant produces. Firms that copy the accounting figure onto the proposal form are frequently underinsured before they start.
Example one: the kitchen fire
A restaurant suffers a kitchen fire. Repairs take five months. The property section pays for the reinstatement. The BI section pays the gross profit the restaurant would have earned across those five months — judged against its trading history and trend, not a guess — plus the cost of the temporary unit it rented to keep its delivery business alive. Honest detail: the claim also covers the slow climb back. Customers do not all return on reopening day, and a well-set indemnity period runs until revenue recovers, not until the paint dries.
Example two: the supplier who burned instead
A furniture retailer loses nothing itself, but its single upholstery supplier suffers a fire and deliveries stop for a quarter. Whether the retailer has a claim depends entirely on whether its policy includes a suppliers extension — cover for damage at named or unnamed supplier premises. Many SME packages exclude this or cap it at a small percentage of the sum insured. If your business depends on one supplier, one warehouse or one anchor customer, this extension is the difference between a covered loss and a bad year.
Example three: the pandemic, and what the courts had to sort out
The hardest honest example is the one where thousands of businesses believed they were covered and their insurers disagreed. During COVID-19, UK firms with infectious-disease and prevention-of-access clauses claimed for lockdown losses; insurers argued the wordings did not respond. The UK regulator took a representative sample of wordings to court, and in January 2021 the Supreme Court substantially found for policyholders — a judgment the FCA said was relevant to roughly 370,000 policyholders across some 700 policy types from 60 insurers.
The lesson for a small business is not that pandemics are now covered — most wordings written since exclude them explicitly. The lesson is that the exact words of extension clauses decide real money, and that reading the disease, denial-of-access and utilities extensions before you buy is not pedantry. It is the purchase.
Setting the two numbers
- Sum insured: calculate insurable gross profit the way the policy defines it — typically turnover less uninsured variable costs — and project it forward. Cover the indemnity period ahead of you, not the year behind you. A growing business insuring last year's figure is underinsured by exactly its growth rate.
- Indemnity period: twelve months is the default and it is frequently too short. Ask how long it would take to rebuild premises, replace specialised equipment, and win back customers. For anything with a fitted-out site or a long equipment lead time, 18 to 24 months is the realistic floor.
Before you buy: a five-minute checklist
- Does the definition of gross profit match how your costs actually behave — which costs truly stop when trading stops?
- Is the indemnity period long enough to include planning, rebuild and customer recovery?
- Are suppliers, customers and utilities extensions included, and at what limits?
- Do you know your policy's trends clause — how it adjusts for a growing or shrinking business?
- Have you told your insurer about the temporary workarounds you would use, so increased cost of working is realistic?
Business interruption is the rare cover where the buyer's arithmetic matters as much as the insurer's. Get the two numbers right and it does exactly what it promises: it pays the profit the loss stole, for as long as the loss keeps stealing it.