Business interruption insurance (also known as business income insurance) is a type of insurance that covers loss of income that a business suffers after a natural disaster – Fire and Allied Perils. The income loss covered may be due to closing of the business facility or due to the rebuilding process after a disaster.
i. Loss of Gross Profit as defined in the policy.
ii. Additional expenses incurred as a result of necessary relocation of the business premises, rental fees, additional transport charges to the new location. an insured peril (e.g. hiring alternative premises)
iii. Wages (sometimes included with (i) above) paid during an interruption period.
Basically the policy is the same as fire policy wording ie it covers the same kind of perils, but two important features should be noted:
i. Property damage warranty: if no valid property insurance claim covers the damage (usually a fire policy), no claim can be made under the business interruption (BI) policy, otherwise it can easily be seen that the interruption period is likely to be greatly extended.
ii. Policy specification: a very important part of the BI policy are the definition of gross profit ( which has a different meaning from that normally used by accountants) and other terms applicable to the cover.
The premium calculation is complex, but it begins by using the rate charged for insuring the contents of the building for the fire insurance. This is then loaded according to the time factorinvolved with the cover