Business Interruption

Business Interruption: This coverage will pay for the loss of Business Income you sustain due to the necessary suspension of your “operations” during a business interruption caused by an insured property loss. There are different forms of BI Insurance available;

Profits: Business Income:

(a) Net Income (Net Profit or Loss before income taxes) that would have been earned or incurred; minus standing charges

 Profits – Actual Loss Sustained includes:

  • Net Income (Net Profit or Loss before income taxes) that would have been earned or incurred
  • Continuing normal operating expenses incurred, including payroll
  • Additional Coverages: Expenses to Reduce Loss, Civil Authority that prohibits access to the described premises due to direct physical loss to a neighboring property,

During Alterations and New Buildings construction and Extended Business Income

Extra Expenses: the actual and necessary Extra Expense you incur due to an insured direct physical loss or damage to property

Ordinary Payroll:  costs incurred to for the entire payroll expense for all your employees except officers, executives, department managers, and employees under contract.

Rents: Loss of Rental Income as a result of an insured loss.


Claims Examples:

A manufacturer of tents incurs an insured fire loss and is forced to move out while repairs are completed.

Basic Example “BI – Actual Loss Sustained” calculation:

Expected sales (i.e. if the premises had not suffered damage) = $100,000

(Minus)  Actual  reduces sales due to loss = $20,000

Reduction in sales total = $80,000

Insureds normal Cost of sales 30% = $24,000

Total Reduction in gross profit = $56,000

(Add)  Additional expenses (e.g. rental of temporary premises) – $10,000

(Add) Claim preparation costs (e.g. accountant’s costs) – $5,000

= Total BI Claim $51,000

Risk Management Resources

Business Continuity Plan – Creation Toolkit

Business Interruption Insurance

Benefits of Business Interruption Insurance