Business Interruption Insurance: The Cover That Keeps the Lights On

After a major fire, most businesses discover their insurance only pays for the physical damage. The building, the machines, the stock — all covered. But the months of lost production, the salaries, the rent, the loan EMIs that continue while the plant is rebuilt — a standard fire policy pays nothing for these.

What Business Interruption (BI) covers

A BI policy (also called Fire Loss of Profit) pays your loss of gross profit and continuing fixed expenses when operations are interrupted by damage covered under your fire policy. It can also cover increased cost of working — renting temporary premises or outsourcing production to keep customers supplied.

The indemnity period — the most important number

The indemnity period is how long the insurer will keep paying after the loss — 6, 12, 18 or 24 months. Choose it by asking: how long would it genuinely take to rebuild, re-order machinery (import lead times included), re-commission and return to pre-loss turnover? Most Indian manufacturers underestimate this. 12 months is the realistic minimum for anything with imported machinery.

Getting the sum insured right

• Base it on gross profit (net profit plus standing charges), not on turnover
• Project forward — the loss may happen at the end of the policy year
• Review after any capacity expansion or major price change
• Keep monthly management accounts ready — they are the basis of the claim

BI is inexpensive relative to the exposure, and it attaches to the fire policy you likely already have. For any business that cannot simply relocate and restart, it is the difference between a bad quarter and a closure.