Property insurance covers physical damage — business interruption coverage covers the income lost while that damage gets repaired, which property coverage alone doesn’t touch.
How it works
Annual gross profit (revenue minus the variable costs that stop when the business stops) is prorated over the estimated restoration period — the time needed to get operations fully back up and running.
What this does not include
Fixed costs that continue regardless of operations (rent, some salaries) are implicitly captured since gross profit already reflects revenue minus only variable costs — but this calculator doesn’t separately itemize which fixed costs specifically continue, a detail a real policy’s coverage limits would need to address.
How to use this calculator
- Enter annual revenue and annual variable costs.
- Enter the estimated restoration period in months.
A worked example
$2,400,000 annual revenue, $1,440,000 annual variable costs, 6-month estimated restoration period: annual gross profit = $960,000, coverage need = $480,000 (half the annual gross profit).
The same revenue and costs, but a 12-month restoration estimate: coverage need = $960,000 — a full year of gross profit protection.
What the variables mean
| Variable | Meaning |
|---|---|
| Annual revenue, variable costs | Used to calculate annual gross profit |
| Restoration months | Estimated time to rebuild or resume normal operations after a covered loss |
Edge cases worth knowing
Coverage need scales directly with the restoration period, not with revenue alone. A business expecting a longer rebuild time after a disaster needs proportionally more coverage, since business interruption insurance replaces lost gross profit for the full time operations are disrupted.
Variable costs exceeding revenue makes gross profit negative, and the calculator declines to show a result for that invalid business scenario.
Frequently asked questions
Why use gross profit instead of total revenue?
Because variable costs (materials, some labor) stop along with revenue when the business stops — insuring the full revenue would overstate the actual loss.
How is the restoration period usually estimated?
Often based on a professional assessment of how long rebuilding or repairs would realistically take for the specific type of damage and property.
Does this cover a slow ramp-back to full operations?
Not explicitly — many real policies include an “extended period of indemnity” for the ramp-up after physical restoration is complete, a refinement this basic calculator doesn’t model.
