How does business interruption insurance work?

Business interruption insurance is for business owners whose commercial profit is contingent on the uninterrupted functioning of their business property. A landlord, for example, will lose a lot of money in rents if the rented building is destroyed or damaged - say - by fire.

Business interruption insurance protects insured business owners against the loss of income which they would have otherwise received, provided that the physical damage incurred to the property is covered by the policy. Prospective insureds must remember that they will probably find business interruption coverage under the name "business income insurance" - in fact, business interruption insurance is the former name of this type of coverage.

Business interruption insurance provides financial coverage for businesses that have experienced loss of profit due to the suspension of business activities in the period of restoration after a direct physical damage to the premises. Insurers use a formula for determining the exact business income loss: it is calculated as the difference between the expected income and the income after the loss. A prerequisite for the payment of business interruption insurance compensation is that the physical damage to the business property has been caused by a peril covered by the policy.

Business interruption insurance also covers any unexpected expenses which the business owner has incurred on account of the property loss. In addition to this, business interruption insurance covers the loss of income caused by any necessary alterations to the insured buildings, or caused by the operations of civil authorities.

You can buy business interruption insurance with coinsurance of a certain percentage varying from 50 to 125. The coinsurance amount needs to be carefully calculated prior to signing the policy agreement.

There are a number of optional coverages that may be added to the business interruption policy at the request of the insured. These include the maximum period of indemnity, the monthly limit of indemnity, the business income agreed value and the extended period of indemnity.

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