The business interruption indemnity period is the length of time, starting from the date of the damage, during which the policy measures your lost gross profit. When it ends, cover for that loss ends, whether your business has recovered or not. Our business interruption insurance page explains how the cover works overall. This guide is about choosing the period: how long recovery actually takes, how the choice interacts with the sum insured, and the extensions that make a claim workable.
What the Indemnity Period Means, and What It Does Not
- It starts on the date of the insured damage, not the date you reopen.
- It is the maximum length of loss the policy will measure.
- It is not a waiting period. A policy may also have a time excess, a set number of hours or days at the start of a claim that you carry yourself.
- It only starts after insured physical damage. Business interruption sections typically require the damage to be insured under the material damage section before the interruption cover responds. That condition is known as the material damage proviso.
How Long Recovery Really Takes
The common mistake is to estimate the time to repair the building. The indemnity period has to run until your trading results are back where they would have been without the damage. Build the timeline from your own business:
- Make safe and assess. Securing the site, making it safe, and waiting for assessors, engineers and the insurer to inspect.
- Approvals. Demolition and rebuilding may need council or authority approvals, and timeframes vary by council and project.
- Design and tender. Drawings, quotes, and waiting for a builder to be available, which takes longer after a widespread weather event when every builder in the region is busy.
- Rebuild and fit-out. The construction itself, then fit-out, services and signage.
- Re-equip. Replacing specialised plant, machinery or refrigeration, some of which may be imported with long lead times.
- Staff. Rehiring and retraining if staff have moved on during the closure.
- Customers. Winning back customers who went elsewhere, and contracts that were retendered while you were closed.
The last two steps are the easiest to leave out, and they can take longer than the rebuild. Our article on why business interruption insurance matters looks at what a closure does to cash flow while this timeline plays out.
Why 12 Months Can Be Too Short
A 12 month period is a familiar default because it matches the policy year, not because it matches recovery. Consider a longer period if:
- Your premises are purpose-built or hard to replace, such as cold stores, workshops with heavy lifting gear, or sites with specific zoning.
- You rely on specialised or imported equipment.
- Your revenue depends on long-term contracts that could be awarded to someone else while you are closed.
- Your business is seasonal, so a closure that runs through the peak season sets you back a full year.
- You operate in an area exposed to widespread events such as cyclone, flood or bushfire, where builders and trades are stretched afterwards.
- You are a tenant and your landlord controls the rebuild timetable.
Longer periods, such as 18, 24 or 36 months, are available. Price them alongside the 12 month option, and compare the difference in premium with what the final months of a slow recovery would cost you with no cover at all.
Gross Profit Versus Revenue Basis
Business interruption is usually insured on one of two bases.
- Gross profit. Broadly, turnover less the variable costs that stop when trading stops, such as purchases of stock and materials. What counts as an uninsured working expense is set by the policy definition, which can differ from the gross profit figure in your accounts. Your accountant should work from the policy definition, not the profit and loss statement.
- Revenue. Some service businesses, with few costs that fall away when trading stops, insure gross revenue instead. It is simpler to calculate, but the sum insured is higher, so check it reflects how your business actually spends.
The Sum Insured Must Match the Period
This is where longer periods trip businesses up. The sum insured must reflect gross profit for the whole indemnity period, including expected growth. A business choosing 24 months needs a sum insured based on 24 months of gross profit, not 12. If the sum insured falls short, an underinsurance or average clause can reduce the claim in proportion. Our explainer on underinsurance and co-insurance shows how that reduction is applied.
Choosing a Business Interruption Indemnity Period
- Map your own recovery timeline, step by step, for a serious fire at your main premises.
- Add time for customers and contracts to return, not just for the doors to reopen.
- Check the timeline against your lease, key contracts and seasonal peaks.
- Set the sum insured to match the period chosen, including growth.
- Review both at every renewal, and whenever you change premises or win major contracts.
If you own the building you trade from, your loss of rent as landlord is a separate question with its own indemnity period. Our guide to commercial property owners insurance covers it.
Claims Preparation Costs and Other Extensions
A business interruption claim is an accounting exercise. You will need to show what the business would have earned, what it did earn, and what it spent to keep trading. Claims preparation cost extensions typically pay reasonable fees charged by your accountant to produce that information, up to a sublimit. Check the limit is realistic for a claim that runs through the full period. Our guide to how the claims process works sets out the general steps.
Other extensions worth checking, each with its own sublimits and conditions:
- Additional increased cost of working, for extra costs to keep trading, such as temporary premises, beyond what the standard cover allows.
- Customers and suppliers, where damage at their premises interrupts your business.
- Prevention of access, where damage nearby stops customers reaching you.
- Public utilities, where an outage stops trading.
Common Questions
Does the indemnity period start when we reopen?
No. It starts on the date of the damage. Time spent closed is already running down the period.
If we choose 24 months, does the premium double?
Not necessarily. There is no list price, and the premium depends on several factors, but the sum insured does need to reflect 24 months of gross profit. Ask your broker to price both options.
Can we change the indemnity period mid-term?
It can usually be reviewed at renewal or by endorsement. Changes apply from when the insurer agrees them, not retrospectively.
Talk It Through
Request a quote or call 1300 983 940 and we will work through your recovery timeline and set your business interruption insurance to match it.
General advice only. This article does not take your objectives, financial situation or needs into account. Consider the relevant PDS and Target Market Determination before deciding on a policy.