Affected by the Buncefield Oil Depot explosion in December 2005? Remember the floods that virtually destroyed the Cornish town of Boscastle in 2004? Apart from the obvious human misery caused by these disasters, a common bond that they share is that innocent businesses were prevented from working through no fault of their own.

As a businessman or woman, common-sense if nothing else tells you that to operate a business without insurance would be tantamount to commercial suicide. Yet why do so many businesses cover those elements but not cover their businesses against unforeseen interruption. Business interruption insurance (BI) is what they are missing.

BI seeks to maintain the businesses profits in the event of disaster of some kind, allowing time to get the business functioning again. Costs will still be incurred while production is down or non-existent - staff still need to be paid even though the business cannot use them in the short term.

BI operates in three ways. Firstly, BI covers the fixed, or ongoing, costs of a business which cannot be met out of any financial reserves the company may have. The majority of these need to be paid irrespective of whether work is possible.

Secondly, BI policies will cover any increased or new costs that are required to get the business up and running. This could cover finding a new site, redirecting post and telephones, acquiring new equipment, paying overtime, using ‘friendly competitors’ to complete orders, buying new supplies possibly at a higher rate, and advertisements to tell your customers of the temporary change in business circumstances.

Finally, a BI policy will pay enough money to maintain the level of net profits that the company had insured for.

Should a business need to claim on their BI policy, they need to be aware that the insurers will need to see accounts before any payments are made.

Insurers use a variety of accepted accounting principles to establish their liability to pay a claim. They would look for information on variable costs such as raw materials etc that rise or fall depending on the required production/sales; data on fixed costs such as business rates - things that do not vary according to the level of sales; net profit; revenue levels; and gross profit - the difference between revenue and variable costs.

So make sure that once you’ve taken out a BI policy that you keep it, the documentation and detailed business accounts information safe because without the official paperwork you may have a devil of a job proving what you’re entitled to.

When ever choosing a BI policy, or any other insurance policy for that matter, it is vital to check the wording used by the insurers. By their very nature, insurers use terminology which is neither vague or open to confusion. It will detail what it will and what it will not pay for - make sure it matches your needs.

Naturally, the amount you’ll be charged for BI will depend on the type of business and the length of time that you’ll want to be paid for. Insurers term this as the Maximum Indemnity Period. However, you can expect to pay between £300 to £400 per year based on a gross profit of £250,000 depending on business sector and location. It goes without saying that the premium is dependent on the information supplied by the proposer.

For more information on the insurer for you, the best advice is to find a good broker.