If you're exploring business insurance, you've likely come across the term ‘period of indemnity’. It is an important concept, especially in policies that protect you from financial losses due to business interruptions. But what exactly does it mean and why should you care? Understanding the indemnity period in insurance can help you choose the right cover and ensure you're adequately protected.
What is indemnity period?
The period of indemnity definition refers to the duration for which an insurance policy will cover the loss of income and additional expenses after a business faces an interruption. This usually comes under business interruption insurance or similar covers.
Here’s what you need to know:
- It starts from the date of the incident (like a fire or natural disaster) that disrupts business operations.
- It continues until the business is back to its pre-loss condition or until the agreed-upon time period ends, whichever is earlier.
- This period is crucial in determining how much compensation a business will receive.
For instance, if your business is forced to shut down due to a fire, the indemnity period in insurance ensures you're compensated for the loss of profits and additional costs to resume operations.
Indemnity period examples
Let’s look at some indemnity period example scenarios:
Example 1: Small retail shop fire
- A local shop suffers a fire and is shut for four months.
- The policy has a period of indemnity of six months.
- The insurer covers lost profits and temporary relocation costs for the four-month downtime.
Example 2: Factory flood damage
- A manufacturing unit is hit by a flood.
- Repair and reinstallation take 10 months.
- The policy’s indemnity period is only six months.
- The insurer pays for just six months of losses. The business bears the remaining four months on its own.
Example 3: Software company cyberattack
- A cyberattack paralyses a tech firm.
- It takes two months to restore systems and operations.
- With a three-month indemnity period, the business is fully covered.
Conclusion
The period of indemnity plays a key role in protecting your business income during unexpected interruptions. Always assess how long recovery might take and choose your indemnity period accordingly. If you offer professional services, a professional indemnity insurance policy can also safeguard you from legal and financial risks.
Disclaimer: The information provided in this blog is for educational and informational purposes only. It is advised to verify the currency and relevance of the data and information before taking any major steps. Please read the sales brochure / policy wordings carefully for detailed information about on risk factors, terms, conditions and exclusions. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.