What is business interruption insurance?

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

Share this guide
woman working at desk

How does business interruption insurance work?

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 out to put physical damage to your premises or equipment right. But it wouldn’t pay for the business interruption that has led to your loss of earnings. Business interruption insurance will.

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

What counts as business interruption?

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

  • if your essential business equipment breaks

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

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

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

Is it a necessity to have business interruption insurance, UK wide?

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

You could ask yourself whether your business would survive if you couldn’t trade from your premises. 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 time. Would they return and boost your business the minute you reopened? Or would they have found alternatives places to spend their money? If they do the latter, it can be hard to win them back and the cost to your business can be huge.

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

Does business interruption insurance cover COVID-19?

The COVID-19 pandemic has caused mass business interruption and significant financial loss. Many business owners have tried to claim under their business interruption insurance. 

When it comes to business interruption insurance, COVID-19 has caused major confusion. There have been many disagreements on whether business interruption policies cover coronavirus. There’s been widespread debate as to what constitutes a valid claim.

In most instances, with business interruption insurance, COVID-19 isn’t covered. Many policies specifically exclude pandemics.

But, last year the Financial Conduct Authority (FCA) appealed to the High Court. At the FCA business interruption insurance appeal the High Court ruled that some business interruption policies are valid. As with all insurance, the wording of your policy is key.

Your business interruption insurance policy is more likely to cover COVID-19 if it refers to things like:

  • ‘notifiable disease’

  • ‘prevention’ of access’

  • and ‘losses caused by government restrictions’.

However, each policy will need checking carefully.

Some business interruption policies will only cover specific, listed diseases. Other policies will only cover you if the disease is specifically ‘at’ your premises.

Insurers are instructed by the FCA to look at each business interruption claim on a case-by-case basis. Some insurers have agreed that they won’t deduct the existing COVID-19 payouts from government and local government from claims. However, generally insurance customers wouldn’t be expected to claim for losses they’ve already been reimbursed for.

If you don’t know if you have a claim, the best thing to do is to speak to your broker or insurer. If you’re not happy with your business interruption insurer’s response to your claim, you can make a complaint through all the usual routes.

Read about making a claim on your business insurance.

How much does business interruption cover 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, for example, additional fees that you might have to pay such as accountants’ fees, or the hire of temporary premises.

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.

How to find business interruption cover 

Most of the time, business interruption insurance is offered as an ‘add-on’ to another business package. The premium can then all be rolled into one.

Read about and compare business insurance.

Find out more about professional indemnity 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.

Business insurance is a way to protect your company against financial risk if things go wrong.