Business interruption insurance: does your business need it?

If your business is unable to trade following an unexpected event, business interruption insurance could protect your company against loss of income. In fact, it could be just what you need to get through a tricky time.

What is business interruption insurance?

Business interruption insurance is a way to protect your business from unexpected events. It pays out if your business loses income because something unexpected affects your ability to carry out business as usual.

Business interruption insurance isn’t the same as buildings and contents insurance. Buildings and contents insurance would pay to put right any physical damage to your premises or equipment. But it wouldn’t pay for any business interruption leading to loss of earnings that results from this or any other event. Business interruption insurance would.

Having business interruption insurance could save your business if disaster struck. It could keep it afloat while you can’t trade or help you get back on your feet when you can start trading again.

What does business interruption insurance cover?

This will depend on your policy, but business interruption could cover you if:

• Your business can’t operate because your premises or equipment has been damaged by fire, storm or flooding

• Your essential business equipment breaks

• Customers can’t access your business premises (for example, if the police cordon off the area)

• One of your important supplier’s or customer’s business premises is damaged and this negatively affects you

Business interruption insurance won’t cover cyber risks such as viruses or hackers but you can get separate specialist insurance policies that do protect you against these.

Is business interruption a legal requirement?

It’s not a legal requirement to have business interruption insurance in the UK. It’s your call based on whether you think it’s necessary for your business.

You could ask yourself whether your business would survive or continue to be financially robust if you couldn’t trade from your premises or whether it would be seriously damaged. Could you easily relocate for a while? Or would you need access to all the stock you hold at your premises?

You could also think about whether your customers would stay loyal if your business was closed for a period of time. Would they return and boost your business the minute you reopened? Or would they have found alternative places to spend their money? If they do the latter, it could be hard to win them back and the cost to your business could be huge.

So, while it’s not a requirement to have business interruption insurance, it can be a very good idea for many businesses.

How much does business interruption insurance pay out?

This depends on how much cover you’ve got and what your situation is but, usually, a business interruption cover claim will pay out for:

• Loss of profits resulting from the business interruption

• Extra costs that arise as a result of the business interruption

Extra costs could include additional fees you might have to pay, such as accountants’ fees or the hire of temporary premises.

How to make a business insurance claim

The first thing you should do if you need to claim on your business interruption insurance is contact your insurer. 

Be ready to provide details of the situation and any evidence that is required, such as photos of any damage, receipts for any extra expenses you’ve incurred and your accounts to show the profit you’re likely to have made if the incident hadn’t happened.

You can read more about making a claim on your business insurance.

How much does business interruption insurance cost?

The price of business interruption insurance varies greatly depending on what policy you choose and how much cover you want.

The most important thing is to decide whether it’s a worthwhile expense for your business.

Most of the time, business interruption insurance is offered as an “add-on” to a business insurance package including a number of different policies. The premium can then all be rolled into one. It can also often be added to business buildings and contents insurance.

Read about and compare business insurance.

Is business interruption cover tax deductible?

Your business interruption cover is a tax-deductible expense. This means that when you work out your business’s taxable profit, you can deduct the price of your business interruption cover.