A fire policy rebuilds the factory. It does not pay the salaries while it is rebuilt.
Business interruption cover is the part of a property programme most Indian SMEs skip, and the part that decides survival.
Material damage cover pays to repair or replace what burned. Business interruption cover pays the gross profit lost and the fixed costs that continue while you cannot trade.
What it covers
- Loss of gross profit during the indemnity period
- Standing charges that continue: rent, salaries, interest, utilities
- Increased cost of working - temporary premises, outsourced production, expedited freight
The two numbers that matter
- Gross profit as the policy defines it, which is not the accounting definition. It is usually turnover less specified variable costs.
- Indemnity period - how long recovery realistically takes. Twelve months is the default and is frequently too short for a plant needing imported machinery with a long lead time.
Extensions worth considering
- Supplier and customer extension, where one relationship carries the business
- Denial of access, where damage to a neighbouring property stops you trading
- Utilities failure
The claim is only as good as the records. Keep management accounts, production data and stock records that a loss adjuster can follow.