This clause requires you to buy insurance that pays your lost income if your business is forced to shut down due to a covered event—like a fire, flood, or (in modern policies) a pandemic. If your factory burns down and you can't operate for three months, this insurance replaces your lost profits and helps you pay fixed costs like rent and salaries. This matters because without it, a single disaster could bankrupt you even if you rebuild later. The clause protects both you and the other party (who depends on you to perform your contract).
Read the "covered events" list carefully—some policies exclude specific risks like pandemics, cyber attacks, or supplier failures, so you might think you're covered when you're not. Ask your insurance broker what the actual waiting period is (often 7–30 days before payments start) and whether it covers your full monthly costs. If the required coverage amount seems high, calculate your actual monthly fixed costs and negotiate the clause to match that realistic figure. ---
Frequently Asked Questions
What does this clause mean in simple terms?
This clause requires you to buy insurance that pays your lost income if your business is forced to shut down due to a covered event—like a fire, flood, or (in modern policies) a pandemic.
Why should I care about this clause?
If your factory burns down and you can't operate for three months, this insurance replaces your lost profits and helps you pay fixed costs like rent and salaries.
What are my options?
This matters because without it, a single disaster could bankrupt you even if you rebuild later.
How does this affect small businesses?
The clause protects both you and the other party (who depends on you to perform your contract).