Business Interruption Insurance: Comparing the Forms That Protect Your Business

Running a business means planning for the unexpected. Whether it’s a fire, flood, cyberattack, or supply chain disruption, interruptions can strike when you least expect them—halting operations and threatening your bottom line. That’s why business interruption insurance is a must-have for Canadian businesses of all sizes.

But did you know there’s more than one type of business interruption coverage? Understanding the differences between the main forms—Gross Earnings, Profits, and Actual Loss Sustained—can help you choose the protection that fits your unique risks, so you can recover faster and with fewer headaches.

Let’s break down the key forms of business interruption insurance, compare their features, and help you make an informed decision for your operation.

What Is Business Interruption Insurance?

Business interruption insurance covers the loss of income and extra expenses a business faces when operations are disrupted by a covered peril (like fire, theft, or certain natural disasters). While your property insurance covers physical damage, business interruption insurance covers the financial fallout—helping you pay bills, cover payroll, and keep your business afloat until you’re back up and running.

But not all business interruption policies are created equal. The form of coverage you choose determines how your loss is calculated, how long you’re covered, and what expenses are included.

The Three Main Forms of Business Interruption Coverage

1. Gross Earnings Form

How It Works

The Gross Earnings form reimburses you for the reduction in gross earnings (sales minus the cost of goods sold) during the period your business is shut down due to a covered loss. Coverage starts at the moment of the loss and continues until you’re able to resume operations, up to the point your damaged property is repaired or replaced.

Key Features

• Coverage Period: From the date of loss until property is repaired or could reasonably be repaired.
• What’s Covered: Lost gross earnings, less any expenses that don’t continue during the shutdown.
• Extra Expense Option: Can often be added to cover costs incurred to minimize the loss (like renting temporary space or equipment).
• No Indemnity for Extended Loss: Once repairs are done and you could reopen, coverage ends—even if your customers haven’t fully returned.

Best For

• Businesses with straightforward operations and quick recovery timelines (e.g., retail, small offices).
• Companies where income bounces back quickly after reopening.

Pros

• Simple calculation.
• Lower premiums compared to broader forms.
• Good for businesses with short recovery periods.

Cons

• No coverage for lost income after repairs are complete (even if sales are still down).
• May not cover all ongoing expenses if business takes time to ramp up.

2. Profits Form

How It Works

The Profits form is broader. It covers the reduction in net profits (after expenses) plus ongoing fixed costs during the interruption. Coverage extends from the date of loss until your business returns to the level of income it would have achieved if the loss hadn’t occurred—subject to the policy’s maximum indemnity period.

Key Features

• Coverage Period: From the date of loss until income is restored to pre-loss levels, up to the indemnity period (often 12, 18, or 24 months).
• What’s Covered: Net profits you would have earned, plus continuing operating expenses (like rent, utilities, payroll).
• Extended Indemnity: Continues after repairs are done, until business income is fully restored (within time limits).
• Extra Expense Option: Can be included or purchased separately.

Best For

• Businesses with longer recovery curves (e.g., restaurants, manufacturers, service providers with loyal client bases).
• Companies where customers may take time to return after reopening.

Pros

• Covers the true impact of a shutdown—including slow return of customers.
• Protects both profits and ongoing expenses.
• More comprehensive for businesses with complex operations.

Cons

• More complex to calculate (requires detailed financial records).
• Higher premiums than Gross Earnings form.
• Requires careful selection of indemnity period.

3. Actual Loss Sustained (ALS) Form

How It Works

The ALS form is the broadest and simplest for the insured—it pays the actual loss of business income sustained during the period of restoration, up to the policy limit, with no set dollar amount in advance. It covers the net income that would have been earned, plus normal operating expenses (including payroll), during the interruption.

Key Features

• Coverage Period: From the date of loss until business operations are restored (subject to policy maximums, often 12 months).
• What’s Covered: Actual loss of net income plus continuing expenses.
• No Coinsurance Requirement: Unlike other forms, you don’t have to estimate your exposure or meet a coinsurance clause.
• Extra Expense Option: Included or available as an add-on.

Best For

• Businesses with unpredictable sales patterns.
• Companies that want the broadest, most flexible coverage.

Pros

• Easiest for insureds—no need to set a limit based on projected income.
• Covers the actual financial impact, up to the policy’s time or dollar limits.
• No risk of under insurance due to incorrect estimates.

Cons

• May be more expensive due to its broad coverage.
• Still requires good documentation to prove loss.
• Maximum indemnity period may limit recovery for businesses with very long ramp-up times.

Comparing the Forms: Quick Reference Table

What About Extra Expense Coverage?

Extra Expense insurance is often paired with business interruption coverage. It reimburses you for additional costs incurred to minimize the length or impact of a shutdown—such as renting temporary premises, outsourcing production, or expediting repairs.

• With Gross Earnings or Profits Forms: Often optional or a separate add-on.
• With ALS: Sometimes included, but check your policy details.

Key Considerations When Choosing a Business Interruption Form

1. How Long Would It Take to Recover?

If your business can bounce back quickly, Gross Earnings might suffice. If you’d need months to rebuild your customer base, Profits or ALS forms provide better protection.

2. How Predictable Is Your Revenue?

If your sales fluctuate or are hard to project, ALS is often the safest bet.

3. Do You Have Good Financial Records?

Profits and ALS forms require detailed documentation to calculate losses. Make sure your accounting is up to date.

4. What’s the Right Indemnity Period?

Consider how long it would realistically take to restore your business to pre-loss income levels. Don’t underestimate—choose a period that reflects your true risk.

5. Are There Any Policy Exclusions or Waiting Periods?

Review your policy for excluded perils (like pandemics or certain natural disasters) and any waiting period before coverage kicks in.

Real-World Example: Restaurant vs. Manufacturer

Restaurant Example

A fire shuts down a popular restaurant for three months. When repairs are complete, loyal customers return slowly—sales are only 60% of normal for the next two months.

• Gross Earnings Form: Covers lost income during repairs, but not the slow ramp-up after reopening.
• Profits Form/ALS: Covers both the downtime and the period of reduced sales until business is fully restored (within the indemnity period).

Manufacturer Example

A manufacturer’s equipment is damaged in a flood. Repairs take six weeks, but as soon as production resumes, back-orders are filled and sales return to normal immediately.

• Gross Earnings Form: Likely sufficient, as there’s no slow ramp-up.
• Profits/ALS: Also covers the loss, but may not be necessary unless there are other complications.

Tips for Getting the Most from Your Coverage

• Work with an Expert Broker: Business interruption is complex—AIM Insurance brokers can help you assess your risks and select the right form.
• Update Your Policy Regularly: As your business grows or changes, your coverage should keep pace.
• Keep Detailed Records: In the event of a claim, accurate financial statements and inventory records are crucial.
• Bundle for Savings: Combine business interruption with your property, liability, and cyber insurance for comprehensive protection and potential discounts.

The AIM Insurance Advantage

At AIM Insurance, we understand the unique challenges Canadian businesses face. Our team offers:

• Personalized, one-on-one advice: No call centers—just experienced brokers who know your industry.
• Fast, responsive service: Get answers in minutes.
• Custom solutions: We help you choose the right business interruption form and coverage for your needs.
• Support throughout the claims process: We’re with you every step of the way, from policy selection to claim resolution.

Protect Your Business from the Unexpected

A business interruption can be devastating—but with the right coverage, you can weather the storm and come back stronger. Not sure which form is right for you? Let’s talk.

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