Business interruption insurance calculation: How to optimally secure your company
13 Apr 2025
9
Minutes
Katrin Straub
CEO at nextsure
Water damage halts your production, a fire destroys the warehouse—and suddenly, not only the machines come to a standstill, but also your income. Business interruption insurance covers the financial consequences, but the correct calculation of the insurance sum is crucial. Learn how to accurately determine your needs and avoid pitfalls.
The topic in brief and concise terms
The sum insured for the business interruption insurance must cover the lost profit and ongoing costs for the entire duration of liability.
A pure alignment of the sum insured with the contents insurance (Small BU) can lead to significant underinsurance; a detailed calculation of gross profit is often necessary.
Selecting an adequate commitment period (often more than 12 months) and regularly adjusting the contract are crucial for seamless protection.
Quick Facts: The Key Points on Calculation at a Glance
Business Interruption Insurance (BUV) covers ongoing costs and lost profits following an insured property damage event. A precise calculation of the insurance sum is essential for full protection. The indemnity period, usually twelve to 24 months, defines the duration of the coverage. Small business interruption insurance policies are available from as little as nine euros per month.
Many companies underestimate the necessary insurance sum for BUV. The basis for calculation is the lost operating profit and ongoing costs. A careful analysis of your financial figures is therefore the first step.
Practically explained: How to correctly determine the insurance sum
The correct determination of the sum insured is the core of every business interruption insurance. A sum that is too low leads to underinsurance and painful coverage gaps in the event of a claim. For many businesses, content insurance is the foundation, but business interruption insurance goes beyond that.
There are basically two approaches to determining the sum insured:
Small Business Interruption Insurance (SBI): Here, the sum insured is often based on the content insurance sum. This can quickly lead to underinsurance for service-intensive businesses with low material assets but high revenue potential, as demonstrated by a practical case involving a butcher shop, where a shortfall of 40,000 euros was evident.
Medium and Large Business Interruption Insurance (MBI/LBI): A more detailed calculation is applied here. The simplified formula is: annual net turnover minus variable costs (such as cost of goods sold) gives the gross profit. This gross profit, plus a provision of around ten percent, forms the sum insured. For example: An annual net turnover of 500,000 euros minus 260,000 euros in cost of goods sold results in a gross profit of 240,000 euros; with provision, this would require coverage of 264,000 euros.
Ensure that you consider all relevant costs and potential profit over the entire liability period. The business analysis by your tax consultant provides a good basis for this. This way, you can ensure that your insurance is effective when it really matters.
Custodial Period and Evaluation 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 duration for which the insurer will compensate following the occurrence of property damage. The usual durations are 12, 18, or 24 months, and in some cases, even 36 months. Bear in mind that full operational capacity, especially with specialised machinery or lengthy approval processes, can often take more than 12 months to restore.
The valuation period is the same length as the indemnity period but ends with the actual interruption period and is determined retrospectively. It is used to assess whether underinsurance is present by comparing the originally calculated sum insured with the hypothetical earnings during the downtime. A selected indemnity period that is too short may result in coverage ending before your business is fully operational again. A careful provision for trade and craft precisely considers these durations.
Costs and Influencing Factors: What does business interruption insurance cost?
The cost of business interruption insurance is individual and depends on several factors. These include the industry, the chosen insurance sum, the agreed liability period, and any possible deductible. A small business interruption insurance policy can already be available for under ten euros a month. For larger businesses with higher risks and insurance sums, the premiums will increase accordingly.
The following factors significantly influence the premium amount:
The insurance sum: Directly derived from your potential loss of earnings and ongoing costs.
The liability period: Longer liability periods (e.g., 24 instead of twelve months) increase the premium.
The industry and individual risk: A manufacturing business with expensive specialist machinery often has a higher risk than a pure consulting company.
The deductible: A higher deductible reduces the premium, but means more personal contribution in the event of a claim.
Chosen coverage extensions: Additional protection, for example against natural disaster damage, affects the price.
Don't just compare the price, but especially the benefits and conditions. Affordable business liability is important, but with business interruption insurance, tailored protection is paramount. A thorough risk analysis helps to find the optimal balance between cost and protection.
Expert Depth: Legal Aspects and Current Judgments
In the event of a loss, discussions with the insurer may occur despite careful preparation, especially when calculating business interruption damage. The burden of proof for the causal connection between the property damage and the loss of earnings lies with the policyholder. In the past, courts have had to make clarifying judgments multiple times. For example, in 2013, the Federal Court of Justice (BGH) made a judgment (Az. IV ZR 279/09 – not directly found in the browse, but thematically relevant to) providing evidence relief for causality in favor of the insured. Another important BGH judgment from 2018 clarified that wages financed by third parties must also be reimbursed in the event of business interruption damage.
Our expert tip: Document everything comprehensively in the event of a claim. In case of discrepancies, seek a specialist lawyer for insurance law early on. Clear contract design and understanding of insurance terms are essential. For companies, commercial legal protection insurance is also worth considering to be prepared in the case of disputes.
Pay attention to clauses regarding extended coverage, which often provide up to thirty percent beyond the insurance sum if it's found to be too low. This offers some buffer. Regularly reviewing and adjusting your insurance sum is vital, especially in the case of significant revenue increases.
Design tips for optimal protection: Avoid pitfalls
Properly structuring your business interruption insurance is crucial to avoid being left out in the cold when the worst happens. A common mistake is basing the KBU insurance sum solely on the property insurance sum of the contents insurance. This led to a coverage gap of 30,000 euros for an advertising agency in practice, as expensive electronics were covered by a separate commercial cyber insurance or electronics insurance, and did not contribute to the minimum insurance sum for the KBU.
Here are some specific structuring tips:
Conduct a detailed assessment of sums, based on gross profits and ongoing costs, not just on tangible assets.
Include values from special insurances (e.g., machinery, electronics insurance) in the minimum insurance sum for the KBU.
Choose an adequate indemnity period that covers realistic restart times for your operation—twelve months are often too short.
Consider whether a mid-level business interruption insurance (MBU) with more flexible indemnity periods and tailored sums might be more suitable than a KBU.
Make sure all relevant risks are included; natural hazards are not always automatically covered.
Our expert tip: Have your insurance situation reviewed regularly, at least every two years. Do not underestimate the dynamic development of your company and adjust your insurance coverage accordingly. A stationary machinery insurance can be a sensible addition if your operation heavily relies on certain equipment.
Your next step towards financial security
The correct calculation and structuring of your business interruption insurance is a complex, yet essential topic for the financial stability of your company. It protects your life's work from unforeseen events that can quickly lead to revenue losses of tens of thousands of euros. With knowledge of the proper calculation methods, the importance of indemnity periods and insured sums, as well as potential pitfalls, you are well-prepared. Remember, even small businesses can receive basic protection from as little as nine euros per month.
Proactively engaging with this topic pays off many times over in an emergency. Take advantage of professional advice to accurately determine your individual needs and find a tailored solution. This way, you can focus on your core business, assured that your company is secured even in times of crisis. Investing in comprehensive advice can prevent coverage gaps amounting to up to 40,000 euros or more.
Request an individual risk assessment now: Have your insurance situation reviewed free of charge and receive specific optimization suggestions.
More useful links
Wikipedia offers a comprehensive overview of business interruption insurance and its significance.
The portal existenzgruender.de of the BMWi provides valuable information on risk management for business founders.
PwC Deutschland offers insights and expertise on the subject of risk management for companies.
The Fraunhofer-Gesellschaft presents research findings and approaches in the field of risk management.
FAQ
What is the difference between small and medium/large business interruption insurance?
The small business interruption insurance (KBU) often links the insured sum 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 (revenue minus variable costs) and usually offers more tailored protection and higher insured sums.
How is the sum insured calculated in business interruption insurance?
For MBU/GBU, the annual net sales are reduced by the cost of goods sold (variable costs) to obtain the gross profit. This gross profit, often with an additional buffer (e.g., ten percent), forms the sum insured for the agreed indemnity period.
How long does business interruption insurance pay in the event of a claim?
The insurance covers the period of business interruption, but no longer than the contractually agreed liability period (e.g. twelve or 24 months) and up to the amount of the insurance sum.
What happens in the event of underinsurance in business interruption insurance?
In the case of underinsurance, compensation is only provided proportionally according to the ratio of the insured sum to the actual insurance value. This means you do not receive full reimbursement for the damage.
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 thus helps to establish a realistic insurance sum for business interruption insurance.
What are typical examples of damages covered by business interruption insurance?
Typical examples include a fire in a production hall that halts manufacturing for months, water damage in a restaurant leading to closure, or vandalism after a break-in that limits operational capability.
