Business Interruption Insurance
Contemplating the unforeseen
As a business owner, you need to contemplate the worst case scenario to ensure that you are adequately prepared for all the challenges that may affect your business. Unforeseen events and natural disasters are one of the potential threats that you need to be prepared for as it can potentially spell the end of your business.
There is a solution
Business interruption insurance, also known as loss of profits cover, provides insurance for loss or damage suffered as a result of an unexpected disaster. It will help pay for the running costs like staff salaries and protects profit margins while our business recovers back to its normal operating level. Disasters such as fire, flood, explosion or earthquakes are covered under this kind of insurance. The two most common losses are material damage and the consequential loss.
Some of the loss effects include a reduction in sales or turnover, supporting payment of continuing expenses out of reduced income, incurring additional costs in an attempt to minimise losses suffered, potential loss of long standing customers and a few more. Business interruption insurance will make provision following a claim to ensure that monthly expenses such as the payment of employees, rent and other fixed costs will be paid by your insurer for the length as dictated by the indemnity period.
How does it work?
Your broker will use normalised annual turnover of the business under favourable operating conditions to assess the required insurance cover required. Following an insured peril, the insurer will reinstate damages under the fire policies and start paying costs such as staff salaries and wages, rent, hire purchase costs and any other monthly recurring costs in order to get the business back to producing turn over. The insurer will also make up the difference between the normal turn over and the post-peril turn over until such time as either the indemnity period chosen is exhausted or the business is back to normal.
Most claimants are taken aback by the amount of time it takes to get back to ‘normal’ business after disaster has struck. It is a common problem that business owners often select an insufficient ‘Indemnity Period’. Loss adjustors recommend an Indemnity Period of no less than 12 months and in the case of large manufacturing risks, that period can stretch up to two years or more.
Ensure your business survival
Realistically, any business interruption can potentially be a major challenge for a small business especially in tough trading conditions. Therefore it makes good business sense to be covered for the unforeseen by considering business interruption insurance for the long term survival of your business and the livelihood of your staff.