Why do you need it?
Even minor damage to your property could seriously disrupt your business leading to loss of income and extra expenses.
Business interruption insurance will compensate for the short-fall in gross profit together with paying any increased working costs and extra accountants’ fees incurred.
What cover does a Business Interruption insurance policy provide?
The money lost in the event of an emergency or other event can be devastating for a company. If an organization has to shut down temporarily due to a disaster, business interruptions insurance will cover income that would have otherwise been generated, using the financial records of the company, had they not had to close down. This will also cover operating expenses, such as utilities, while the doors are closed.
No business interruption insurance policy is going to provide your company with compensation over a long period. Most policies only cover a number of weeks or a few months at most. The idea is that you are being covered for an interruption – not simply for lack of business due to the prevailing economic circumstances.
Specifically, a Business Interruption policy will cover will cover you for:
- Losses due to sudden personal incapacity
- Losses due to a sudden and unforeseen natural disaster (e.g. flood damage, fire, storms)
- Losses due to local government action (e.g. road works)
- Losses due to theft and vandalism
- IT failure
Unlike other forms of insurance (e.g. fire and theft), with business loss insurance you are not insuring actual goods. Consequently you will need to have a very good idea of how much your business earns to assess accurately the amount of your potential business losses.
How much Business Interruption cover will I need?
The sum you insure for should be sufficient to cover gross profits over the term of the policy, and should make allowances for profits growth, as well as likely increases in overheads and restart-up costs.
When arranging this insurance you will need to estimate the maximum time needed to get your business working normally following the most serious damage. The insurers will ask for an estimate of your anticipated gross profit. If an auditor later certifies an actual figure materially lower than this estimate, a return of premium is normally given. The term of the cover should reflect the time it is likely to take to get the business up and running again.