Loss of income insurance: What do you need to know?
When an unexpected event disrupts the normal running of a business, the financial impact can be both immediate and significant. For any business reliant on physical premises, even a brief interruption can place enormous strain on cash flow, staffing and customer confidence. This is where loss of income insurance becomes essential.
Christie Insurance
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Loss of income insurance, also commonly known as business interruption insurance, is designed to protect the income a business would have earned had the loss not occurred. It keeps income steady, while repairs, rebuilds or recovery efforts take place.
What does it cover?
Loss of income insurance is usually triggered by physical damage such as fire, flood, escape of water or storm damage. Once triggered, the policy provides financial support to maintain the business’s essential operating costs until normal trading can resume.
How this cover is arranged varies depending on how the business operates. Businesses that sell goods, such as pharmacies, shops or manufacturers, typically insure on a gross profit basis. Property‑dependent businesses such as care homes, restaurants, pubs and hotels, often insure on a revenue basis instead. Both approaches aim to ensure the business has the financial foundation it needs during a period of disruption.
Understanding “gross profit” in insurance terms
A common pitfall when putting loss of income insurance into place, is confusion around the meaning of “gross profit.” In everyday accounting, gross profit simply means sales minus the cost of goods sold. It’s a measure of performance.
In insurance, the definition is different because the purpose is different. Insurers typically calculate gross profit as turnover minus uninsured working expenses, with adjustments for stock depending on the policy. This figure reflects the money required to keep the business running during an interruption, covering fixed operating costs, essential overheads, net profit and, if chosen, staff wages.
Relying on the accounting definition when arranging cover can lead to significant underinsurance, as the amount protected would be far lower than what the business needs in a real‑life disruption.
The importance of choosing the right indemnity period
The indemnity period is the maximum length of time the policy will support the business following a loss. Recovery often takes far longer than expected. Selecting too short an indemnity period may save a small amount on the premium, but it can leave the business without support long before it is able to recover fully. We’ve seen clients experience this firsthand, and provide advice to safeguard against this.
Typical causes of loss of income claims
Most loss of income claims start with physical damage such as fire, flooding, storms or escape‑of‑water incidents. These events often force businesses to close temporarily while repairs take place. In the last few years, leaks and escape‑of‑water incidents have become one of the most frequent causes of loss of income claims across our clients.
Many policies also include non‑damage extensions, which can respond to issues like police cordons, safety‑related closures or utility failures. An example of how disruption can spread beyond the affected property is the high-profile 2025 fire at Chiltern Firehouse, a prominent hospitality venue in central London. Although the damage was limited to the venue itself, its temporary closure significantly reduced footfall in the surrounding area, causing neighbouring businesses to experience lost revenue.
Get in touch with our team
Loss of Income insurance is one of the most valuable protections a business can put in place. When arranged correctly, it ensures that a temporary setback does not become a long‑term financial challenge. For support reviewing your cover or checking that your indemnity period and gross profit calculations are right, the Christie Insurance team is always ready to help.
T: 01908 920570
E: enquiries@christieinsurance.com