Business Interruption Insurance - policy cover basis categories
Business Interruption insurance can be the difference between sinking or swimming if you suffer a serious event that stops or severely disrupts your business from trading for a period of time.
It covers the financial loss of income that you would have received if the event had never occurred and means that you can repair and rebuild your business, back to its usual operation, without suffering significant financial loss.
The basis of cover Business Interruption insurance can be written on falls into three categories, and the most suitable one for your business will depend on your particular business set up.
It’s important that you secure the right cover on the right policy basis to ensure that if disaster strikes, your income is protected, and the longevity of your business is secured whilst you rebuild or repair.
The three types are loss of gross profit, loss of gross revenue and increased cost of working.
Loss of gross income
This is the most common policy basis and covers the loss of net profit following the reduction of turnover, standing charges and any increased costs of working.
Deciding on the level of business interruption insurance cover you need can be complicated and difficult to work out, so we recommend that you seek specialist assistance to help you arrive at the right cover levels. This will ensure that you are not left underinsured in a time of crisis.
To arrive at the final sum to be insured you will need to deduct your variable costs, because these will cease in the event of a loss and therefore don’t need to be included, with the exception of your wage roll. This must remain within the calculation. Excluding all other variable costs helps to reduce your premium.
This cover basis is a great option for businesses that have a lot of variable costs and is typically suited to manufacturing organisations. Increased cost of working can be added as an extension to this policy basis.
Loss of gross revenue
This policy basis covers the reduction in turnover experienced following a loss or increased costs of working. If you don’t have very many variable costs that would need to be covered in the event of an incident, then this may be the best policy basis for you.
Calculating the sum to be insured is much easier because you only need to know the total revenue that you would have achieved for the length of the indemnity period.
This is a good policy basis for service-based sectors such as accountants, solicitors and architects, because business costs will not reduce in direct proportion to turnover in the event of a loss. An increased cost of working extension can be added to this policy basis too.
Increased cost of working
This Business Interruption policy extension can be added to the two types of policy detailed above, but also can be purchased as a standalone cover.
In this form, Business Interruption insurance cover provides the company with monies to cover reasonable additional expenses to help the business recover following a loss.
Costs that this covers include:
- Staff overtime
- Temporary staff costs
- Staff training costs
- Finding alternative premises and rental costs
- Setting up new or temporary communication systems
- Storage costs
- Removal costs
- PR and advertising costs
- Security costs associated with making the new or damaged location safe
The best way to decide which cover basis will be the right solution for your business is to speak to one of our expert advisers who can carry out a complete risk assessment to help identify the best cover option. Find out more about Business Interruption insurance here.
Contact us today to speak with an experienced member of the team and protect your business from interruption-based risk. Call us on 01480 272727 or complete our enquiry form.