Compare business interruption insurance
What is business interruption insurance?
Business interruption insurance, often referred to as BI cover in Australia, protects a business against the financial consequences of an unexpected interruption. This usually includes events such as fire, storm damage, flooding from burst pipes, impact damage or other covered perils under your business premises or business insurance policy.
Unlike property insurance, which focuses on repairing physical assets, business interruption insurance can help cover losses and safeguard a business’s financial position. It covers the business owner for lost income, ongoing operating expenses, and additional costs incurred to maintain operations during the recovery period.
What does business interruption insurance cover?
Business interruption coverage varies by insurer and policy type but most policies include several core components, such as loss of revenue, operating and fixed expenses, increased cost of working and optional extras. Understanding each is crucial for assessing whether a policy works for your business.
Loss of revenue
The most significant component of business interruption insurance is the replacement of lost income. This cover ensures that even if business operations temporarily cease, you are compensated for the income the business would otherwise have generated.
Depending on the policy structure, this is calculated based on either:
- Gross profit: commonly used for businesses that purchase stock and sell goods, such as retail stores, restaurants, and manufacturers.
- Gross revenue: often used for service-based businesses where operating expenses directly correlate with revenue.
Operating and fixed expenses
Business interruption insurance typically covers these ongoing costs, which may include:
- Rent, mortgage, or lease payments
- Utilities such as electricity, gas, and water
- Loan repayments and interest
- Insurance premiums
- Contracted service fees, such as cleaning or security services
Increased cost of working
Depending on your insurance policies, some providers may extend this to include additional costs beyond what is strictly required for mitigating losses, provided those costs help maintain business operations.
These increased costs of working may include:
- Rental of a temporary location
- Temporary equipment hire
- Outsourcing work to third-party providers
- Overtime payments for staff
- Express freight charges to replace essential stock
- Expedited repairs to minimise downtime
Optional extras
Depending on the insurer and the nature of your business, optional extensions may be added, including:
- Public utilities interruption: Covers lost income due to failure of essential utilities such as power, water or telecommunications (restrictions may apply).
- Closure by public authority: Covers shutdowns mandated by authorities due to insured damage (for example, closure after a fire in the building).
- Infectious disease cover: Limited availability post-pandemic and must be specifically requested.
How to choose the right business interruption cover for your business
There is not necessarily one “right” cover. When choosing business interruption cover, start by accurately calculating your gross profit or revenue needs, selecting an indemnity period long enough for full recovery from an insured event, and evaluating policy options side‑by‑side using a comparison service to find cover that matches your business risks and budget.
To ensure your business interruption insurance policy is adequate and accurate, consider the following:
Calculate gross profit and business income
Underinsurance is one of the most common issues with business interruption claims. Business owners should work with their accountant or insurance broker to calculate the correct gross profit or revenue figure, as an incorrect calculation can result in reduced claim payments.
Assess your indemnity period
Determine how long it would realistically take to return to full operating capacity after major damage.
Consider supply chain dependencies and assess whether your business is vulnerable to interruptions affecting suppliers or key customers.
Update your cover annually
As your business grows, your BI coverage should keep pace. Revenue changes, staffing levels and new equipment can all affect how much coverage you may need.
Depending on your type of insurance, some policies automatically include wages, while others allow business owners to choose how payroll is treated during an interruption. Ensuring wages are appropriately insured can help retain skilled staff and support a faster recovery once operations resume.
Review policy conditions and exclusions carefully
Business interruption policies contain specific definitions, waiting periods, conditions and exclusions that directly affect claim outcomes.
When do payments for business interruption insurance start?
Payments for business interruption insurance typically starts from the date and time your trading is first impacted by insured physical damage at the premises, after any time excess/waiting period stated in your policy.
However, two key conditions must still be met.
- There must be physical damage to property insured under the policy. Business interruption cover does not trigger without insured property damage unless you have specific optional extensions.
- There must also be a clear connection between the physical loss and the interruption to your business.
Once triggered, the policy begins covering losses during the policy’s defined indemnity period.
Understanding the indemnity period
The indemnity period is the maximum period during which the insurer will pay for financial losses resulting from the interruption. It does not refer to how long the policy is active, but rather how long compensation is provided after an insured event.
Depending on your insurance policy, common choices for indemnity periods include 6 months, 12 months, 18 months, 24 months, and 36 months. Selecting an appropriate indemnity period is critical.
Businesses with long repair times, specialised equipment, supply chain dependencies, or high turnover may require longer periods. Once the indemnity period ends, payments cease even if the business has not fully recovered.
The indemnity period is one of the most critical decisions when arranging business interruption insurance. It defines how long your insurer will pay for lost income and ongoing expenses following an insured event.
What does business interruption insurance not cover?
While business interruption insurance provides broad financial protection, it does not cover everything. Common exclusions may include:
- Losses without associated insured physical damage
- Gradual deterioration, wear and tear or maintenance issues
- Voluntary business closures
- Economic downturns or loss of market share
- Losses caused by pandemics or infectious diseases, unless specifically added
- Losses unrelated to the insured event
Always read the policy wording on your Product Disclosure Statement (PDS), as exclusions and conditions can vary significantly.
Meet our business insurance expert, Adrian Taylor
As a General Insurance expert with over 13 years’ experience in financial services, Adrian Taylor strongly believes in the protection and peace of mind that all types of business insurance provide business owners. Adrian says this type of cover can be the difference between a business staying afloat and going under if trouble arises.