Dealing with any loss due to a fire is stressful, however coping with one’s business loss after such a catastrophe can often be more stressful due to the loss of revenue and certain standing charges that continue irrespective of the situation that the insured is placed in; bank interests, employee's salaries, rent, electricity etc. This ultimately results in a loss of gross profits due to reduction in turn over and increased cost of working during the period of interruption.
For Business Interruption cover to operate, it is compulsory that there be in place a Property All Risks or Fire Insurance Policy. This cover takes into consideration the following aspects, which should be addressed when opting for this cover, as follows
- Gross Profit
- Net Profit
- Standing Charges
- Annual Turnover
- Period of Indemnity
There are two types of Deductibles (Monetary and Time) applicable under the BI insurance for each and every loss in addition to a number of other Conditions.
Gross Profit
The amount by which sum of the value of the turnover and the value of the closing stock exceed the sum of the value of the opening stock and the amount of the specified working expenses. The values of the opening and closing stocks shall be arrived at in accordance with the Insured's normal accountancy methods, due provision being made for depreciation.
Net Profit
The Net Trading Profit (exclusive of all Capital receipts and accretions and all outlay properly chargeable to Capital) resulting from the business of the Insured at the premises after due provision has been made for all standing and other charges including depreciation
Standing Charges
Interest, Rent, Bank Charges, Insurance Premium, Advertising, Printing, Stationery, Electricity, Traveling Expenses, Maintenance of Plant and Machinery, Depreciation of Building, Plant and Motor Vehicles etc.
Annual Turnover
The Money paid or payable to the Insured for goods sold and delivered and for services rendered in course of the business at the premises
Period Of Indemnity
Whilst the period of insurance is 12 months, the indemnity period differs. This would depend on the period the insured would feel necessary to prepare to come back to the position they were before the loss in terms of both property and trading. Reasonably the periods would be anything between six and eighteen months. However, it would basically be worked out based on the Indemnity amount payable by the insurers which will be in respect of:
- Reduction in Turnover
- Increase in cost of working
The rate chargeable is always applied on the Total Sum Insured (Gross Profit) and is very dependant to the period of indemnity, nature of risk, location and alternatives available to continue with the business.
