Why 12 months is the lazy default
Most policies default to a 12 month indemnity period because that is what fits a shop that can be rebuilt or relocated quickly. It is also the cheapest premium to quote. For an industrial operation with custom plant, long supplier rebuild times, or customers who would shift elsewhere during an outage, 12 months covers the demolition and the start of the rebuild. It does not cover the period when revenue is still recovering after you reopen.
The three things that decide the right length
A defensible indemnity period comes from three honest questions. The selector below walks through them one at a time.
- Industry baseline. Manufacturing and food production rebuild slowly. Retail and hospitality reopen quickly. Commercial landlords sit between the two.
- Lead time on critical equipment. Custom plant, imported machinery, and bespoke production lines can take 6 to 18 months to replace. Off-the-shelf equipment is back in weeks.
- Supplier and customer concentration. If you depend on a small number of key relationships, rebuilding them after a long outage adds months on top of the physical recovery.
Common periods, what they actually buy
| Period | Fits |
|---|---|
| 12 months | Single-site retail or hospitality, off-the-shelf equipment, low concentration on suppliers or customers. |
| 18 months | Multi-site retail, hospitality with specialised fit-out, commercial landlords with predictable tenancies. |
| 24 months | Manufacturing with standard equipment, food production, healthcare, construction works in progress. |
| 30 months | Manufacturing or distribution with imported plant or significant supplier concentration. |
| 36 months | Bespoke production lines, imported custom plant with 12+ month lead times, businesses where key customers would need rebuilding from scratch. |
What it costs to extend
Extending the indemnity period from 12 to 24 months does not double the business interruption premium. The pricing reflects the probability that a loss runs that long, not a linear multiplier. For most operations, the additional premium for a longer indemnity period is the cheapest insurance you will buy. The expensive lesson is choosing 12 months because it was quoted that way and discovering the rebuild took 20.
A note on dual payroll
Indemnity period and payroll cover are separate decisions. Many policies write payroll on a dual basis. 100% for the first 13 weeks, then a percentage (often 50%) for the balance of the indemnity period. The dual structure recognises that, in a long outage, you would probably restructure headcount. It is not a reason to shorten the indemnity period.