Property insurance rebuilds the building. Business interruption replaces the income the building was earning while it is being rebuilt. Most businesses insure the first properly and guess at the second.
Business interruption, explained.
Business interruption insurance replaces the income your business would have earned had the loss not happened, and pays the fixed costs that keep running while you are shut down. It is an endorsement to the property policy rather than a separate contract, so it responds only when there is covered physical damage.
Canada uses two forms, and they are not interchangeable
Almost every Canadian commercial policy writes business interruption on one of two forms. Which one you have changes what gets deducted, what coinsurance percentage applies, and crucially, when the money stops.
- The Gross Earnings form pays from the date of loss until the property is repaired, or could reasonably have been repaired. Then it stops, whatever your sales are doing. Coinsurance is stated in your declarations, usually 50% or 80%.
- The Profits form keeps paying until your income is back to pre-loss levels, up to an indemnity period you choose in advance. It carries a 100% coinsurance requirement, which means there is no margin built into it whatsoever.
The difference matters most in the recovery. Repairs finishing is not the same thing as customers coming back. Under the Gross Earnings form, the months you spend rebuilding your order book after the doors reopen are yours to fund.
How each one calculates the value
Both start from sales and strip out the costs that stop when sales stop. They just do it with different vocabulary.
Under the Gross Earnings form, you take your sales and any other earnings the business brings in, then take out the stock you buy to sell, the packaging that goes with it, and the materials, supplies and outside services you use up delivering the work.
Under the Profits form, you take your sales and take out the same kind of thing: the costs that fall away in step with sales. The full Profits wording also adjusts for the movement in stock and work in progress between the start and end of the year. That is nil for a service business and small for most others, but if you carry significant inventory that swung hard last year, it belongs on your worksheet.
The mistake that does the most damage
Deducting too much. The only costs that come out are the ones that fall away when the business stops operating. Payroll usually is not one of them, because the entire purpose of the coverage is to hold your team together so there is a business to come back to. Treat wages as a variable cost on the worksheet and you will insure a fraction of your real exposure.
Rent, utilities, insurance, loan payments, management salaries and professional fees all keep running while the doors are shut. Those are precisely what the coverage exists to pay.
Payroll is a decision, not a default
Payroll deserves its own section, because it is the biggest continuing cost most businesses have and the one policies handle in the least obvious way.
Policies split your people in two. Ordinary payroll is the entire payroll expense for all employees except officers, executives, department managers and employees under contract. Those excepted salaries are treated as standing charges: they stay insured, because a business obviously cannot dispense with its management and expect to reopen. Everyone else is ordinary payroll, and that is the part you get to make a choice about.
The choice is how long to insure it for. You can cover ordinary payroll in full, limit it to a set number of days after the loss (30, 60 and 90 are the usual Canadian options, and some insurers offer 180), or exclude it entirely. Every step down that list cuts the value you must insure, and cuts your premium with it.
It also cuts your workforce. A ninety-day limitation on a fire that closes you for a year means wages for your general staff stop in month four, while the rebuild runs for another eight. You could finish the building and reopen without the crew who knew how to run it, and the recovery you insured for takes far longer than the money assumed.
There are situations where limiting payroll is sensible, usually where staff are genuinely easy to replace. There are others where it is close to reckless, including any business with skilled trades, long training times, or a union agreement that obliges you to keep paying regardless of what the insurance does. The point is that this should be an explicit decision, not something inherited from whatever the last renewal happened to carry.
Which fixed costs are insured
Under the Profits form the answer is written into the declarations. Gross profit is net profit plus your insured standing charges, and the standard wording insures all standing charges unless the declarations specify a list, in which case only the listed ones are covered. If someone once typed a short list onto that page, everything missing from it is uninsured, and there is nothing on the face of the policy to draw your eye to the omission.
Three things are never standing charges under that wording: depreciation of stock, bad debts, and wages and salaries other than those to permanent staff, foremen and important employees whose services would not be dispensed with if the business were interrupted.
It is measured on next year, not last year
Under the Gross Earnings form the coinsurance basis is the value for the twelve months following the start of the loss, not the twelve months before it. So the test is applied against what your business would have earned had the fire never happened, including the growth you were on track for and the prices you would have been charging.
Twelve months is a default, not an answer
Most policies carry a twelve-month indemnity period because that is what the form arrives with. It is rarely the right number. The period must cover rebuilding the premises and winning your customers back, and a commercial rebuild alone can run twelve to twenty-four months once design, permits and contractor availability are counted.
On the Profits form, a longer period also means a larger sum insured, because the money must stretch across the whole period. Twenty-four months needs roughly twice the annual figure. That is a real premium conversation, but it is a far better one to have now than during a claim.
What it does not cover unless you ask
- Damage somewhere else. Standard business interruption responds to physical damage at your own premises. A supplier burning down, a key customer closing, or damage to a neighbour that stops people reaching you all need contingent business interruption, denial of access, or service interruption extensions.
- Utility failure. A power or water outage that shuts you down without damaging anything of yours generally needs a service interruption extension, and often one that covers overhead transmission lines specifically.
- Extra expense on its own. The cost of a temporary location, expedited freight and overtime to keep trading is sometimes a separate item with its own limit rather than part of the main one.
- Anything without physical damage. This is the lesson of the pandemic litigation. Business interruption is triggered by covered damage. No damage, no claim, however real the loss.
The one thing worth remembering
The building is the easy part. It is visible, a contractor can price it, and everyone remembers to insure it. The income the building was generating is invisible, nobody prices it unprompted, and it is the thing that decides whether you reopen.
Find out whether your income is insured.
Send us your declarations page and a licensed Alberta broker will check which form you are on, whether your limit matches your figures, how long your indemnity period runs, and which extensions you are missing.
Send us your policy for a review
Sources
- Insurance Institute of Canada, Calculating business interruption losses. The Canadian gross earnings definition, the rate of gross earnings, and the 50% or 80% coinsurance stated in the declarations. Published in Canadian Underwriter.
- Zimmerman and Ryman, Pardon the business interruption. Collins Barrow, January 2015: the Gross Earnings form recovers sales less costs that vary with sales and stops when repairs are done, while the Profits form recovers net income plus fixed expenses and runs until sales return to pre-loss levels.
- AIM Insurance, Business interruption insurance in Canada. Comparison of the Gross Earnings, Profits and Actual Loss Sustained forms, and the 100% coinsurance requirement that attaches to the Profits form.
- Business Interruption Profits endorsement form C-712. An actual Canadian Profits wording. The source for gross profit as net profit plus insured standing charges, the three things never deemed standing charges, the 90 day payroll option and its separate 80% coinsurance, and the 12 month indemnity period definition.
- Aligned Insurance, Ordinary payroll. Ordinary payroll as the entire payroll expense except officers, executives, department managers and employees under contract, and the 30, 60 or 90 day options.
- Scrivens, Covering the cost of payroll with your insurance policy. Ole Jensen, August 2025: a Canadian broker on the day-limit options and on checking union agreements before declining payroll coverage.
- Acera Insurance, Why you need a longer indemnity period. Mark Lee: a typical indemnity period is 12 months, 24 to 36 is recommended where possible, and returning to full operational capacity is taking 18 to 24 months.
- Statistics Canada, Building construction price indexes, second quarter 2026. Construction price movement, which is what stretches a rebuild and therefore the interruption behind it.