The indemnity period has to be as long as it realistically takes to restore the business fully after the largest likely loss – including design, permits, equipment delivery, installation and winning customers back, not just the repairs. In practice it is calculated from the lead times of the critical equipment: for manufacturing plants the result is often 18-24 months.

When this answer applies to your situation

  • The company is buying or renewing a property policy with BI cover.
  • The balance sheet includes specialised equipment with long lead times.
  • The bank requires BI cover as a condition of the loan.

What can change the answer

  • Delivery and installation lead times for the critical equipment (ask the suppliers, do not go "from memory").
  • The construction and permit process if the building has to be restored.
  • Seasonality: whether a loss at the start of the season knocks out two seasons.
  • Customer contracts: how quickly turnover really returns once operations restart.

What to check in the policy or quote

  • The length of the indemnity period against a realistic restoration schedule
  • The BI calculation basis (insured profit) against your P&L
  • Cover for increased costs of working to restore operations faster
  • Whether hire of temporary premises/equipment is included

The typical mistake

Choosing 12 months "by default". If the delivery of the production line alone takes 10 months, then with the building works and installation the period runs out while the shutdown continues – and the largest loss is left uncovered.

Example

A situation typical in practice (generalised example, not a specific client)

A typical situation: after a fire at a wood processing plant a new line has to be ordered. Delivery 11 months, restoring the building in parallel 14 months, commissioning and winning customers back another 4-6 months. The period really needed is around 20 months – not 12.

Related content

Sources and basis

This answer is based on Kristaps Račko's practice as a broker; it is not individual insurance advice. General regulatory context: Apdrošināšanas un pārapdrošināšanas izplatīšanas likums, the Latvian Insurance and Reinsurance Distribution Law (likumi.lv); supervision of brokers – the Bank of Latvia register.

Author: Kristaps Račko, insurance broker (partner at SIA EURORISK) Published: Last reviewed:

This is not individual insurance advice; actual cover always depends on the chosen insurer's wording and the special conditions of the policy.