Business interruption cover replaces income lost while you recover from damage, if the trigger, the time limit and the amount are set up correctly.
It sits alongside property insurance, which pays to repair or replace what was damaged. Many insurers sell it as an optional extra to a business or property package.
It starts with physical damage
Business interruption cover is usually tied to physical damage to your property from an event your property policy covers.
So if the flood or fire itself is not covered, do not expect the lost income to be. The commercial property guide covers the property side.
What it can pay
Most policies pay the profit or revenue you lose, the costs that carry on while you are shut, such as wages and rent, and the extra cost of keeping going, such as a temporary kitchen.
Some small business packages pay a fixed amount a day, set when you buy, for a limited number of days (120 days is one example), instead of your actual loss. That is simpler but can fall well short of a real loss, so we always make clear which kind you are buying.
The indemnity period: how long it pays
The indemnity period is the longest time after the damage that the policy will pay for. Insurers typically offer periods from 3 to 36 months.
Pick one that covers the time until sales recover, not just until you reopen. Count the time for repairs, new equipment, approvals and winning customers back.
Gaps to check in the wording
Some losses need an extension (an add-on to the standard cover). Common ones are damage at a supplier's or customer's premises, a failure of public utilities such as power or water, and damage nearby that blocks access to yours. None of these is automatic, so decide early which ones your business depends on.
Closures with no damage at all, such as an order from the authorities, depend on specific wording. Where a policy does cover them, the cover is small and tightly defined: for example, a fixed amount such as S$200 a day for up to 30 days when an authority closes the premises over food poisoning or a reportable infectious disease, with nothing paid for the first few days. Pandemics, epidemics and named diseases such as COVID-19 and dengue are commonly excluded, so we check this line closely for food and hospitality businesses.
Setting the amount from your accounts
Start with last year's sales and subtract the costs that stop when you close, such as stock or ingredients. What is left is roughly the gross profit this cover protects: your net profit plus the running costs that continue. Some policies insure gross revenue instead, and we check which basis yours uses. Adjust for expected growth. If your indemnity period is longer than a year, the sum insured normally scales with it, for example two years of gross profit for a 24-month period.
A simplified, hypothetical example: a café's yearly sales are S$720,000 and its ingredients and packaging cost S$240,000, leaving S$480,000, or S$40,000 a month. A kitchen fire closes it for three months. If no other costs fall away, the lost gross profit is S$120,000, subject to the policy's terms. Any excess (the part you bear yourself, often a set number of hours or days for this cover) comes off that.
With a 12-month indemnity period, the sum insured (the most the policy will pay) in this example would start at S$480,000.
Before your next renewal, ask us to review your property and interruption cover together.
