Business Interruption Insurance

How would you cope if you were suddenly out of business due to an unforeseen event?

It takes time to recover from a major disaster. Many business owners have insurance protection for their buildings and equipment but forget to cover the loss of profits that inevitably occurs after a major claim.

The purpose of Business interruption insurance is to protect your gross profit and help pay your ongoing costs until your business is back up running and generating the same gross profit as it was before a claimable event like a storm or fire.

The cover starts from the date of the loss and extends to the time when your profit levels have recovered to pre-loss levels (called the ‘indemnity period’).

The indemnity period is usually 12, 18 or 24 months. This period can be increased to 36 months if necessary . It can take more time than you think to rebuild a building or a business back to what it was prior to the loss.

If your building is in a large city it can take many months for demolition to occur, plans to be drawn up, building permits to be obtained and the building to be completed.

The definition of Gross Profit under a Business Interruption policy is different to the standard accounting definition of Gross Profit and this definition can impact the calculation of the amount of lost profits you can claim. Calculating a Gross Profit Sum Insured can be tricky and we do have calculation sheets which we can complete with you. A basic Insurable Gross Profit calculation is the sum of your Turnover, less Purchases.

Wages are not deducted from the Gross Profit sum insured as in the event that you are not able to trade following a major loss you will still have/want to be paying your employees so that they are still your employees when you reopen. 

Business interruption Insurance can also cover additional costs which you may need to incur to get your business up and running after damage. For example, you might need to spend money on additional rent for temporary premises or additional wages for people to assist with the clean-up of your business after a fire or storm.

You may also need to outsource manufacturing to a competitor or contract manufacturer. An advertising campaign to win back lost or disgruntled customers. The hire of temporary plant and or equipment. Overtime payment to staff. The temporary employment of additional staff and the list goes on.

Business Interruption Insurance can be the difference between bankruptcy and solvency. I know which one I would choose.

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