Business Interruption Insurance
Terms and Definitions

Basic Elements

All policies have certain business interruption insurance terms which reflect the basic elements of insurable interest, time element and the principle of indemnity.

1. Insurable Interest

To have an insurable interest, there must be the potential of earning business income which normally consists of net inome plus fixed and/or continuing expenses that would have been earned had the event not happened. Business interruption insurance is not needed if there is no prospect for a financial loss arising from the occurrence of an unexpected event. Although obvious, it also requires stating that there must also be an insurable risk (a subject matter eligible for insurance) which accompanies an insurable interest.

2. Time Element

There must be the prospect of the passage of time before a business can earn income or incur continuing expenses.

3. Principle of Indemnity

In simple terms, indemnity is to pay for a loss sustained to a harmed person or entity, but no more than the actual loss incurred.

The essence of business interruption insurance can generally be described as a contract which the insured's business is covered over a period of time for the decrease in profit and increase in costs directly resulting from damage to insured property from a covered peril.