Business interruption insurance to protect your profits when you can't trade

Lost profit. The cover pays the profit you would have made if the damage had not happened. That money goes toward the costs that carry on while you are closed, such as rent and the wages of staff you keep on.

If you lease your premises, check whether the rent would pause while they are unusable. That affects the bills your interruption cover needs to meet.

Additional increased cost of working (AICOW). The reasonable extra money you spend to get back to trading sooner, such as short-term premises, hired equipment or extra staff to clear a backlog, even where it comes to more than the profit it saves. Most of the packs we arrange include $25,000 of this as standard, and the limit can be increased where your recovery would cost more.

On these packs, business interruption pays only where the damage itself is covered: the property claim is paid or accepted, or would be if it were not for your excess. On many business packs, flood is covered only if it has been added and shows on your schedule. Lost profit and AICOW each run for the indemnity period, the longest the policy keeps paying after the damage.

The Australian Financial Complaints Authority (AFCA) looked at a cafe and catering business hit by storm damage. It closed within days and reopened five months later, but trade still had not recovered when its 12-month indemnity period ran out. The insurer paid for the full 12 months: $280,570 for lost gross profit plus $26,863 under the AICOW extension.

The cafe's declared profits figure fell short of what its policy required, so the payout was also cut under the underinsurance clause. AFCA found the insurer had applied that clause correctly and handled the claim reasonably. The 12-month period itself was never in dispute.

Premium is the most common reason business owners push back on a longer period. We talk the trade-off through with you, and the choice is yours.

Business interruption sits beside your contents and stock, theft and liability in a business insurance package. In our experience, many new clients come to us with no business interruption cover.

We show you what it would cost and what it would protect, and you decide.

If another quote is cheaper, compare its profits figure and its period first. A lower figure or a shorter period brings the premium down, and what a claim would pay with it. Each year we take your policy back to the market. We explain your renewal options and any change in price by phone or email.

Most of these packs give the figure its own underinsurance clause, tested at the start of your policy period. It compares your figure with 80 per cent of a year's gross profit, worked out the policy's way, or a bigger multiple where the indemnity period runs past 12 months. If your figure falls short, the insurer can cut the loss in the same proportion. That applies to a total shutdown too, and your figure stays the limit on what it pays for lost profits. A claim worth less than 10 per cent of your figure is usually not cut.

In another AFCA determination, a Sydney hairdressing salon had split into two entities. In a phone call to the insurer, it then reduced its declared gross profit figure from $350,000 to $150,000. The correct insurable value of its gross profit was later assessed at $1,151,905. It claimed across four separate pandemic closure periods, covered under that policy's disease extension rather than its base physical damage cover. The assessed loss came to $672,769. The underinsurance clause cut the payout to $143,512.

Your defence is a figure worked out on a business interruption calculator against your GST-exclusive BAS figures, not a guess. A properly calculated figure gives the underinsurance clause far less to work with.

If you lease, the landlord's policy is there for the building. Your profits, contents and stock are yours to insure. Business owner-tenant insurance sets out the rest of a tenant's cover.

If you own the building you trade from, the building and the business may sit in different entities, such as a company and a self-managed super fund. Each needs its correct name on the cover, and we work out with you, from the quotes, whether that means one policy or two. Owner-occupier insurance covers that case.

A landlord who does not trade from the property insures the rent instead, under commercial landlord insurance.

On a business interruption claim, the claims manager will pursue the profit lost while trade recovers, and the extra cost of reopening sooner.

Nobody can promise what the insurer will decide. If the policy and the evidence support more than the insurer offers, we take it up with them.