Business Interruption Insurance Calculator 2025/26

What Is Business Interruption Insurance?

Business interruption (BI) insurance — also called business income insurance or loss of profits insurance — compensates a business for lost income and continuing fixed expenses when it cannot operate normally following an insured event. Common triggers include fire destroying premises, flooding of a factory, theft of key equipment, or a supplier disaster that halts production.

Without BI cover, a business that suffers a major disruption faces a double financial blow: income stops immediately while fixed costs — rent, salaries, loan repayments, insurance and utilities — continue. BI insurance bridges this gap, paying the business its normal gross profit and standing charges for as long as it takes to recover, up to the maximum indemnity period.

BI is not standalone insurance. It is almost always purchased alongside a material damage (property) policy. The BI policy is typically triggered only after a valid material damage claim — you must first establish that physical damage to property (covered under the material damage policy) caused the income loss.

How BI Cover Is Calculated

The key metric for BI insurance is gross profit — defined in BI policies as turnover minus variable (uninsured) costs. Variable costs are those that automatically stop if the business ceases trading: raw materials, bought-in goods, packaging, direct sales commissions. Fixed costs that continue whether the business trades or not — rent, salaries, rates, loan repayments — are included in gross profit and therefore covered by BI insurance.

The BI sum insured must be sufficient to cover the gross profit the business would have earned during the entire maximum indemnity period. The formula is: Annual Gross Profit × Indemnity Period (months) ÷ 12. For a business with £300,000 annual gross profit and a 24-month indemnity period, the sum insured should be at least £600,000.

Underinsurance and the Average Clause

Underinsurance is one of the most common and costly errors in BI cover. If your sum insured at the time of loss is less than the gross profit you would have earned during the indemnity period, the insurer applies the "average clause". Your claim is reduced proportionally — if you are insured for 60% of what you should be, you only receive 60% of your loss. This can be catastrophic for a business already in financial distress from the disruption.

To avoid underinsurance: always base the sum insured on the projected gross profit for the next indemnity period (not last year's figures), add a contingency margin of 10–20% to allow for growth, and review your cover at every renewal — especially if turnover has increased significantly.

Increased Working Costs

Many BI claims include a significant element of increased working costs (IWC) — extra money spent to keep the business trading during the disruption. Examples include renting emergency premises, paying premium rates for expedited machinery repair, using more expensive suppliers to fulfil orders, or hiring temporary staff. Most BI policies cover IWC, typically up to the amount that these costs reduce the BI loss. The calculator estimates IWC at 15% of the BI loss as a planning guide.