A factory fire does not just burn machinery — it burns cash flow: export orders cancelled, late-delivery penalties from customers, workers still paid while the plant stands idle. Business interruption insurance exists to cover precisely this invisible but lethal loss. Many FDI factory tenants ask: is it truly necessary, or just “insurance for insurance’s sake”?
What is it, and is it mandatory?
This is a voluntary non-life insurance line: the insurer undertakes to compensate the buyer when business is interrupted by an insured event (fire, explosion, storm…) that damages insured property. The key legal point: Article 8 of the 2022 Law on Insurance Business (Law 08/2022/QH15, in force as of 20 October 2026) lists compulsory insurance types — business interruption insurance is not among them. Buying it is entirely the enterprise’s own risk-based decision; nobody can be penalised for not buying. In practice it is usually bought alongside property insurance (fire, all-risks) — because payment is conditional on prior material damage within the property cover.
What does it pay for?
Typical coverage has three parts: (1) lost gross profit during interruption — the gap between expected revenue (absent the incident) and actual revenue; (2) continuing fixed costs despite the idle plant — land rent, wages, loan interest, depreciation; (3) reasonable extra costs to mitigate loss — temporary premises, overtime at another plant. Two contractual concepts buyers often overlook: the waiting period — initial days after the incident with no payment — and the maximum indemnity period — the maximum compensable months (usually 12–24). Reading these two figures before signing matters more than reading the premium.
Do FDI factory tenants need it?
It depends on each enterprise’s risk structure, but for most manufacturing FDI tenants the answer leans “yes” where two or more of these hold: (1) dependence on a single production site — one fire stops the whole supply chain; (2) export orders with heavy late-delivery penalties; (3) large fixed costs (long-term land rent, expensive lines, skilled labour hard to rehire). Conversely, enterprises with mutually backup plants, or pure trading operations less tied to premises, may skip it. The right calculation is not “how much is the premium” but “how much does one idle month cost” — for an average FDI plant, dozens of times the annual premium.
What is the annual premium rate?
The frank answer to the question many owners ask: there is no statutory fixed percentage. Business interruption premiums are agreed between insurer and buyer based on industry, asset values, loss history and the enterprise’s risk controls. Any market-quoted “% per year” without a specific risk analysis is unreliable — buyers should obtain quotes from at least two insurers for comparison, and negotiate discounts by demonstrating strong fire protection and risk management.
When do insurers refuse to pay?
Typical exclusions: (1) events outside the agreed scope (e.g., fire-only cover but interruption by flood); (2) loss from the buyer’s intentional acts; (3) war, terrorism, radiation (unless extended cover is bought); (4) dishonest disclosure at inception (understated revenue, hidden loss history) — the most common refusal ground and entirely within the buyer’s control; (5) interruption within the waiting period. The lesson: absolute honesty at disclosure, and read the exclusion clauses before signing — not after the loss.
Frequently asked questions
1. Should factory tenants buy business interruption insurance?
Buy it if dependent on a single site, facing heavy late-delivery penalties on export orders, or carrying large fixed costs. It is voluntary (not compulsory under Article 8 of the 2022 Law on Insurance Business) — decide on your own risk analysis.
2. What does business interruption insurance pay?
Three parts: lost gross profit during interruption; continuing fixed costs (rent, wages, interest); reasonable extra mitigation costs. Watch the waiting period and maximum indemnity period in the contract.
3. What is the annual premium rate?
No statutory fixed rate — premiums are agreed between insurer and buyer based on industry, asset values, loss history and risk controls. Get quotes from at least two insurers to compare.
4. When do insurers refuse to pay?
Events outside agreed scope; intentional acts; war and radiation (unless extended); dishonest disclosure at inception — the most common ground; interruption within the waiting period.
Key takeaways for investors
- Business interruption insurance is voluntary, not compulsory (Article 8, 2022 Law on Insurance Business).
- It pays lost gross profit plus fixed costs plus reasonable extra costs — read the waiting and indemnity periods carefully.
- Buy it when dependent on one site, facing heavy late-delivery penalties, or carrying large fixed costs.
- No statutory premium rate — compare at least two quotes; be absolutely honest at disclosure to avoid refusal.
This article has been quality-reviewed by the FLAW AI Legal Council. Content is for legal reference only and does not replace lawyer advice for specific cases.
