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Business Interruption Cover – How to keep your business going after a loss
If your business suffers a loss, other insurances will reinstate your assets but what about the loss in turnover and profit as a result of the incident?
You can cover this but there are two types of policy; the best one for you depends on what cover you require.
We would always recommend insuring on a Gross Revenue / Gross Profit basis, together with additional costs, as from experience following a loss, the policyholder would have to spend more money than necessary in order to keep the business functioning in the short term. Insurers would continue to pay for the lost profit (subject to the Terms and Conditions of the policy)
Some policyholders feel “Increased Cost of Working” is acceptable for their business, especially if they are not reliant on machinery and are not restricted to working from their location. Insurers would pay a nominal amount to assist the policyholder following a loss.
Following a loss, complications can occur if there isn’t the appropriate insurance in place and your business could suffer further. Examples include a fire that occurred in a neighbouring property; though it did not directly affect our client’s building, there was enough damage for alternative premises to be required by the policyholder. Only having “Increased Cost of Working” cover meant insurers would not pay the loss of profit the policyholder suffered as a result.
Furthermore, Loss of Gross Profit cover can include various extensions including “Denial of Access” and “Suppliers/Customers/Storage and even Contract Premises” cover.
Loss of Gross Profit / Revenue Insurance
If a fire destroys your premises then your company would not be able to continue to operate. You will be insured for your contents, stock and machinery, and possibly the building, but you will lose Profit / Revenue whilst the business is out of action and this loss is covered and helps pay wages and other non-variable overheads.
Until the business is trading as it was prior to the incident, expenses will be covered, though it is important to have an adequate indemnity period. A standard indemnity period is 12 months, but we would always recommend 24 months, if not longer, as it takes time to source buildings, equipment and recover fully following an incident.
We also recommend an extra layer cover called “Additional Increased Cost of Working,” whereby money can be spent uneconomically in reducing the loss of gross profit.
Increased Cost of Working
This insurance is for companies with simpler requirements i.e. computers, desks etc if the business can be back up and running in new premises within a couple of days. This insurance is less costly and more suitable, however, even a simpler business can lose gross profit following an incident and so it is worth considering the extra costs of loss of gross profit insurance.
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