Business interruption replaces the income a business would have earned while it cannot trade because of damage that is covered by its property policy.
What it is for
Property insurance rebuilds the premises and replaces the equipment. It does nothing about the months of lost trading while that happens.
Meanwhile fixed costs continue: rent, loan payments, salaried staff, insurance. That combination — no revenue, continuing costs — is what closes businesses after an event they had insured.
What it pays
Lost profit for the period the business is unable to operate, continuing fixed expenses, and usually extra expenses incurred to keep trading, such as temporary premises or hired equipment.
The two limits that matter
The indemnity period — the maximum length of time it pays for. Too short is the most common error, because rebuilding and returning to previous trading levels takes longer than owners estimate.
The trigger. Most policies pay only for interruption caused by physical damage covered under the property policy. An interruption with no physical damage — a supplier failing, an access road closed, a utility failure — is generally not covered without a specific extension.
Seasonal businesses
The figure is usually based on trading history. A seasonal business interrupted during its peak loses far more than an annual average implies, and the policy has to be written with that in mind.
What it is not a substitute for
A strategic reserve. Claims take time to assess and pay, and the business has to survive the gap between the event and the payment.