Business interruption insurance calculation: How to best protect your business
13.04.25
7
Minutes
Katrin Straub
Managing Director at nextsure
A water damage incident brings your production to a standstill, a fire destroys the warehouse – and suddenly it’s not just the machines that stop running, but your income too. Business interruption insurance covers the financial consequences, but calculating the insured sum correctly is crucial. Find out how to determine your needs precisely and avoid pitfalls.
The topic in brief and concise terms
The sum insured for business interruption insurance must cover the lost profit and ongoing costs over the entire indemnity period.
A sum insured based solely on the contents insurance (small business interruption cover) can lead to significant underinsurance; a detailed gross profit calculation is often necessary.
Choosing an adequate liability period (often more than 12 months) and regularly adjusting the contract are crucial for seamless cover.
Quick Facts: The key facts about the calculation at a glance
Business interruption insurance (BUV) covers ongoing costs and lost profit following an insured property damage claim. An accurate calculation of the sum insured is essential for full protection. The indemnity period, usually twelve to 24 months, defines the period of cover. Small business interruption policies are already available from around nine euros per month.
Many companies underestimate the required sum insured for business interruption insurance. The basis for calculation is the lost trading profit and ongoing costs. A careful analysis of your financial figures is therefore the first step.
Practical explanation: determining the correct sum insured
The correct determination of the sum insured is the cornerstone of any business interruption insurance policy. A sum that is too low leads to underinsurance and painful gaps in cover in the event of a claim. For many businesses, contents insurance is the foundation, but BI insurance goes beyond that.
There are basically two approaches to calculating the sum insured:
Small business interruption insurance (KBU): Here, the sum insured is often based on the sum insured under the contents insurance policy. For service-intensive businesses with low tangible assets but high earning potential, this can quickly lead to underinsurance of, for example, EUR 40,000, as shown in a practical case involving a butcher's shop.
Medium and large business interruption insurance (MBU/GBU): This involves a more detailed calculation. In simplified terms, the formula is: annual net turnover minus variable costs (such as cost of goods sold) gives gross profit. This gross profit, plus a contingency of around ten per cent, forms the sum insured. For example: an annual net turnover of EUR 500,000 minus EUR 260,000 cost of goods sold gives gross profit of EUR 240,000; with contingency, EUR 264,000 would need to be insured.
Make sure you take all relevant costs and the potential profit into account over the entire indemnity period. Your tax adviser’s management accounts provide a good basis for this. This ensures that your insurance in the event of a claim really does provide cover.
Liability period and assessment period: temporal dimensions of protection
In addition to the sum insured, the indemnity period and the valuation period are key parameters of your business interruption insurance. The indemnity period is the period for which the insurer will provide cover at most after the occurrence of the property damage. Common durations are twelve, 18 or 24 months, and in some cases even 36 months. Bear in mind that restoring full operational readiness, especially for specialist machinery or lengthy approval procedures, can often take more than twelve months.
The valuation period is the same length as the indemnity period, but ends with the end of the actual business interruption and is determined retrospectively. It is used to check whether underinsurance exists by comparing the originally calculated sum insured with the notional earnings during the interruption. An indemnity period chosen to be too short can mean that payments end before your business is fully operational again. Careful cover for trade and skilled crafts takes these periods into account precisely.
Costs and influencing factors: How much does business interruption insurance cost?
The cost of business interruption insurance is individual and depends on several factors. These include the industry, the chosen sum insured, the agreed indemnity period and any excess. A small business interruption policy can already be available for less than ten euros a month. For larger businesses with higher risks and sums insured, the premiums increase accordingly.
The following factors significantly influence the premium:
The sum insured: Derived directly from your potential loss of income and ongoing costs.
The indemnity period: Longer indemnity periods (e.g. 24 instead of twelve months) increase the premium.
The industry and the individual risk: A manufacturing business with expensive specialist machinery often has a higher risk than a pure consultancy.
The excess: A higher excess lowers the premium, but means more out-of-pocket expense in the event of a claim.
Chosen cover extensions: Additional protection, for example against natural hazards, affects the price.
Do not compare only the price, but above all the cover and terms. An affordable business liability insurance is important, but with BUV it is above all the tailored protection that counts. A thorough risk analysis helps to find the optimal balance between costs and cover.
In-depth expertise: legal aspects and recent rulings
In the event of a claim, disputes with the insurer can still arise despite careful preparation, particularly when calculating business interruption loss. The burden of proof for the causal link between the property damage and the loss of income lies with the policyholder. In the past, the courts have already had to issue clarifying judgments on several occasions. For example, in 2013 the Federal Court of Justice (BGH) created a relief in the burden of proof for the causal connection in favour of insured parties in a judgment (case no. IV ZR 279/09 – not directly found in Browse, but thematically relevant to ). Another important BGH judgment from 2018 clarified that even third-party financed wages must be reimbursed as part of a business interruption loss.
Our expert tip: Document everything in full in the event of a claim. If there are discrepancies, involve a specialist lawyer in insurance law at an early stage. Clear contract drafting and an understanding of the insurance terms and conditions are essential. For businesses, commercial legal expenses insurance is also worth considering to be prepared in the event of a dispute.
Pay attention to clauses on subsequent liability, which often provide cover of up to thirty per cent above the sum insured if it turns out to be too low. This provides a certain buffer. Nevertheless, regular review and adjustment of your sum insured, for example in the event of a significant increase in turnover, is essential.
Design tips for optimal protection: Avoid pitfalls
The right structure for your business interruption insurance is crucial so you are not left out in the cold in an emergency. A common mistake is to base the sum insured for the KBU solely on the property sum insured of the contents insurance. In a real-life case involving an advertising agency, this led to a coverage gap of EUR 30,000 because expensive electronics were covered by a separate commercial cyber insurance or electronics insurance and were not included in the minimum sum insured for the KBU.
Here are some concrete structuring tips:
Carry out a detailed sum insured calculation based on gross profit and ongoing costs, not just on tangible assets.
When determining the minimum sum insured for the KBU, also take values from specialist insurance policies into account (e.g. machinery and electronics insurance).
Choose an adequate indemnity period that covers your business's realistic restart times – twelve months is often too short.
Check whether a mid-level business interruption insurance (MBU) policy with more flexible indemnity periods and a sum tailored to your needs is more suitable than a KBU.
Make sure all relevant perils are included; natural hazards are not always covered automatically.
Our expert tip: Have your insurance situation reviewed regularly, at least every two years. Do not underestimate your company's dynamic development and adjust your cover accordingly. A stationary machinery insurance policy can be a useful addition if your business depends heavily on specific equipment.
The correct calculation and structuring of your business interruption insurance is a complex but essential topic for the financial stability of your company. It protects your life's work against unforeseen events that can quickly lead to revenue losses of several tens of thousands of euros. With knowledge of the right calculation methods, the significance of the indemnity period and sum insured, as well as potential pitfalls, you are well prepared. Bear in mind that even small businesses can obtain basic cover from just nine euros a month.
Taking a proactive approach to this issue pays off many times over in an emergency. Take the opportunity of professional advice to determine your individual needs precisely and find a tailored solution. This allows you to focus on your core business, with the reassurance that your company is also protected in times of crisis. Investing in comprehensive advice can save you from coverage gaps of up to 40,000 euros or more.
Request your individual risk analysis now: Have your insurance situation reviewed free of charge and receive specific suggestions for improvement.
More useful links
Wikipedia provides a comprehensive overview of business interruption insurance and its significance.
The portal existenzgruender.de of the BMWi provides valuable information on risk management for start-up founders.
PwC Germany provides insights and expertise on risk management for companies.
The Fraunhofer Society presents research findings and approaches in the field of risk management.
FAQ
What is the difference between a small and a medium/large business interruption insurance policy?
The small business interruption insurance (KBU) often ties the sum insured to the contents insurance, which can lead to underinsurance. The medium (MBU) or large (GBU) business interruption insurance is based on a detailed calculation of gross profit (turnover minus variable costs) and usually offers more tailored cover and higher sums insured.
How is the sum insured calculated for business interruption insurance?
For MBU/GBU, annual net turnover is reduced by the cost of goods sold (variable costs) to determine gross profit. This gross profit, often plus a precautionary surcharge (e.g. ten per cent), forms the sum insured for the agreed indemnity period.
How long does business interruption insurance pay in the event of a claim?
The insurer pays for the duration of the business interruption, but at most for the contractually agreed indemnity period (e.g. twelve or 24 months) and up to the amount of the sum insured.
What happens in the event of underinsurance in business interruption insurance?
In the event of underinsurance, compensation is paid only proportionately in relation to the sum insured and the actual insured value. This means that you do not receive full reimbursement for the loss.
What role does the business management evaluation (BWA) play in the calculation?
The BWA is an important basis for determining ongoing costs and potential profit, and therefore helps to set a realistic sum insured for business interruption insurance.
What are typical examples of claims for business interruption insurance?
Typical examples include a fire in a production hall that halts manufacturing for months, water damage in a restaurant that leads to closure, or vandalism after a break-in that restricts operational capability.
