Three ways business interruption insurance lets people down

Business interruption insurance replaces the income you lose when something stops you trading. Straightforward enough on paper. Where it goes wrong is in the detail, and that shows up mid-claim, when you're counting on the money to arrive.

Here are the three most common mistakes that catch people out.

Mistake #1: The cover has gaps where you'd expect, well, cover

Business interruption pays out when physical damage stops you trading. Fire, flood, a burst pipe that closes the premises, for example. The most common misconception is that interruption insurances covers any loss of income - it doesn’t. Not by default.

If there's no physical damage trigger, there's usually no payout. That's the principle a lot of businesses discovered during the pandemic, when losses without physical damage fell outside most standard policies.

The more subtle gaps matter here, too. Gradual losses, commercial disputes, and downturns with no specific incident behind them generally aren't covered. That makes the cover extremely specific, so it needs to be bought carefully.

The mistake is treating it as a catch-all for any bad quarter.

Mistake #2: The indemnity period runs out before you've recovered

The indemnity period is how long the policy keeps paying after an incident. The most common period is 12 months, selected often without much thought because it feels like a long time.

But recovering from something serious, a bad fire or flood, can take a lot longer than a year. If you have to rebuild a premises, entirely refit it, and then win back the customers who went elsewhere while you were shut, the months quickly melt away.

If your indemnity period ends before you're trading at full strength again, the payments stop. You did everything right, you were insured, you claimed, and you can still run out of cover in month 14 with the business not yet back on its feet. Set this number to match how long you'd realistically take to recover, not the default or the cheapest option.

Mistake #3: Skipping it while insuring everything around it

The other mistake we see most commonly is business with a physical premises having no interruption cover at all!

Plenty of businesses insure the building carefully and stop there. But property cover only pays to put the premises and its contents back. It does nothing for the rent, the wages, and the income you lose over the weeks or months you can't trade.

Two different problems, and insuring the building only solves one.

Setting it up honestly

None of this is a reason to avoid business interruption cover. It's a reason to set it up properly: understand what triggers it, match the indemnity period to a realistic recovery, and don't insure the walls while leaving the trade exposed.

Speak to us about your insurance needs.