What is an indemnity period?
The indemnity period is the maximum length of time your business interruption insurance can respond after an insured event. It generally starts from the date of the loss and runs until your business is restored, or until the indemnity period expires, whichever comes first. Business interruption cover usually responds only where the underlying property (material damage) claim is payable.
If your business takes longer to recover than your indemnity period allows, you stop receiving payments. The remaining loss falls on you.
Why 12 months is rarely enough
The most common indemnity period selected is 12 months. It’s also the most common cause of underinsurance in business interruption claims.
Consider what happens after a major fire at a warehouse:
- Weeks 1-4: Assessment, salvage, insurance claim lodgement
- Months 2-3: Demolition and site clearance
- Months 3-4: Design and council approval for rebuild
- Months 5-10: Construction
- Months 10-12: Fit-out, equipment installation, stock replenishment
- Months 12-15: Ramp back up to full trading capacity
In this scenario, 12 months barely covers the rebuild - let alone the time needed to win back customers and return to pre-loss revenue levels.
How to choose the right period
The right indemnity period depends on three factors:
1. Rebuild time
How long would it take to rebuild or repair your premises after a worst-case event (total loss)? Consider:
- Heritage or complex construction that takes longer
- Council approval timelines in your area
- Availability of specialist contractors
- Supply chain delays for equipment or materials
2. Recovery time
After the premises are rebuilt, how long before your business returns to normal revenue? Consider:
- Customer relationships - will clients wait, or go to competitors?
- Supply chain re-establishment
- Staff re-hiring and training
- Marketing to rebuild brand presence
3. Buffer
Add a buffer for the unexpected: construction delays, weather, disputes with builders, equipment lead times from overseas manufacturers.
Common indemnity periods
- 12 months: Small, simple businesses that can relocate quickly
- 18 months: Standard for most commercial operations
- 24 months: Often chosen for manufacturing, warehousing, and complex operations
- 36 months: Large or specialised operations, heritage buildings, or businesses with long customer recovery times
The cost of getting it wrong
Extending your indemnity period from 12 to 24 months usually increases the business interruption premium by a modest amount relative to the underlying BI rate. The specific uplift varies by insurer, industry and risk profile. Your broker can give you the exact differential for your risk before you decide. Either way, the premium delta is usually modest against the alternative: absorbing months of lost revenue yourself because cover ran out before the business recovered.
A general guide to indemnity periods
As a general guide only, many commercial operations sit at 18 months or more, and manufacturing and warehousing risks often need 24 months because rebuild and recovery times are longer. Premises with specialised construction, or a business that would take time to win back customers after a closure, may warrant 36 months. These are general observations, not a recommendation for your business. The right period depends on your own rebuild time, recovery time and risk profile. Speak to your broker so the period can be set against your actual circumstances before you decide.
Your broker can review your indemnity period at each renewal. As your business grows, your recovery time may increase, and your indemnity period may need to keep pace.