Your building gets rebuilt. The question is whether the policy is still paying by then.
Business interruption can stop paying before you are back to normal. The period was set when the policy was written, often years ago. That number is the whole policy. If the rebuild runs past it, the cheques stop while the doors are still shut.
Start a quote file Read the short answer firstIt starts at the loss, not at the rebuild.
Twelve months is a habit, not a calculation.
Sales do not return the day you reopen.
How long does business interruption insurance actually pay for?
That depends on which form you hold. A profits form pays until your trading is back to normal, but only up to the indemnity period written on your policy, which is a fixed number of months. A gross earnings form pays until the property is repaired or replaced, so it can stop while trade has not come back. Both usually carry an outer limit, commonly twelve months, and on both the clock starts on the day of the loss rather than on the day the builders arrive. When that limit arrives, the policy stops paying and the rest of the loss is yours.
The indemnity period is an easy thing to get wrong, because the number looks harmless on a declarations page. The limit tells you how much money is available. The indemnity period tells you for how long. Running out of time costs just as much as running out of limit.
Count the steps. The fire is put out. The adjuster is appointed and the scope of loss is agreed. Debris is cleared. Drawings are done and a permit is applied for. The job is tendered and a contractor is booked. Long-lead equipment is ordered, and specialized machinery is rarely on a shelf. Then it is built, inspected and commissioned. In the Lower Mainland the two steps that stretch the most are permitting and contractor availability, and neither is in your control. Twelve months covers a small fit-out. It does not reliably cover a plant, a kitchen or a warehouse. The Insurance Bureau of Canada sets out three types to choose from: a gross earnings policy, a profits form, and an extra expense policy for a business that can keep trading somewhere else. Of the first it says it “pays only until property or stock is replaced or damage is repaired”. Of the second, that it “continues to pay until your business resumes its normal, pre-interruption level, subject to limits”. On duration it says most policies pay “until the business is restored or when the coverage expires”, usually twelve months from the start of the interruption. Repaired is not the same as recovered. Read IBC on types of business insurance (opens in a new tab).
Time, money, the tail, and everyone else’s building.
The indemnity period
The months your policy will keep paying, at most. It should be set from how long a full rebuild of your specific premises would take at its slowest, not from how long you hope it would take. If you hold equipment that is made to order or imported, that lead time is part of the answer.
The sum insured
A profits form is written on gross profit, and gross profit in a policy is not the same figure your accountant puts on the statement. It is revenue less the costs that genuinely stop when you stop. Wages and rent often do not stop. Declare too little and a co-insurance or average clause can cut the payment in proportion, so an honest claim is settled at a fraction.
The extended period
Reopening is not recovering. Customers who went elsewhere do not all come back on day one. On a gross earnings form, which stops at the repair, an extended period of indemnity keeps the cover running for a stated time after you are trading again while sales climb back. On a profits form that recovery time is already inside the indemnity period, which is why the period has to be long enough to hold it.
Dependent property
Your building can be untouched and your income can still stop, because the supplier who makes your one component burned down, or the anchor tenant that brings your foot traffic closed. Contingent or dependent property cover answers that. It has to be asked for, and beyond a small blanket amount the properties usually have to be named.
Three illustrations, not client files. Three ways a well-insured business still ends up short.
The machine that was not on a shelf
Property pays to replace the line. Nobody argues about that. But the machine is built to order overseas and arrives months after the building is ready. The indemnity period runs out while the plant sits finished and empty. The property claim is paid in full and the income claim stops early, which is the worst of both.
The gross profit that was a guess
The figure is set when the business is smaller and carries forward unless somebody re-costs it. Turnover grows. The average clause applies, and the settlement is reduced by the same proportion the declaration was short. This is not an insurer being difficult. It is the clause doing exactly what it says.
The reopening that nobody attended
The doors open on schedule and the indemnity period ends the same week. Regular customers moved to another supplier long ago and are on a contract now. Trading takes most of a year to come back, and none of that year is insured, because the period was set from the rebuild alone.
The ones that come up at renewal.
Can I just buy a longer indemnity period?
Usually yes, and it is worth asking what it adds to the premium. Eighteen and twenty-four months are common on manufacturing and on any premises with specialized equipment or a difficult permitting path. On a profits form the sum insured normally has to rise with the period, so ask for both to be quoted together.
Does it pay while the building is being repaired even if I am partly open?
Generally yes. Business interruption responds to the reduction in income, not only to a total shutdown. Trading at half capacity from a corner of the site is a partial loss and is treated as one. Keep records that show what normal looked like before, because the claim is measured against that.
What if the power goes out and my building is fine?
A standard policy responds to interruption caused by insured damage to your own property. An outage at the utility is not damage to your own property, so it needs service interruption or off-premises power cover, and that is a separate item. It usually responds only where insured damage at the utility caused the outage, within a stated distance. Spoilage of stock during an outage is answered by the spoilage cover that usually sits inside the equipment breakdown section, and only where that same off-premises cover was bought.
Does it cover downtime from a cyber attack?
Not on a property policy. Business interruption here is triggered by physical damage. A ransomware event that stops your systems without touching the building is answered by the business interruption section of a cyber policy, which is written differently, has its own waiting period, and has its own limit.
How do I work out my own figure without guessing?
Bring last year’s financial statements and your current declarations page. The gross profit definition is worked out from the statements with you and your accountant, then the period is set from how long your premises would really take to rebuild and re-equip, including the lead time on any machine made to order.
Two that decide the same settlement: replacement cost or actual cash value and what happens when the equipment fails on its own.
Not the question you had? Send the declarations page and the question with it through the quote file and you will get a written answer, not a sales call.
Find out what your indemnity period is before you need it.
It takes one look at your declarations page. If the number is wrong, it is fixable at renewal, and often before.