How does Business Interruption Insurance work?

What is business interruption cover
Why would you need Business Interruption Cover?
8th September 2016
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Life is unpredictable and when it comes to running a business, even more so. So what do you do when you’re faced with the unthinkable? Imagine for a moment you arrive at work one morning and a fire has broken out overnight and your offices destroyed? Keeping your business afloat during times of crisis can be stressful, which is why Business Interruption Insurance is critical to your business’s longevity.

When it comes to Business Interruption Insurance you may insure for loss of any of the following:

  • Loss of net profits: which takes into account the net profit that would have been earned had the business not been interrupted.
  • Loss of gross rentals: usually applicable to landlords who face loss of rental as a result of damage to their premises.
  • Loss of revenue: ideal for service type businesses and covers the amount by which your revenue will fall short of your standard revenue as a result of damage to your premises.
  • Loss of wages: the loss is limited to the payment of wages for a specific number of weeks following the damage. This will be the actual amount, which you will need to pay to your employees whose services cannot be used by you during this time.
  • Additional increase in the cost of working: The amount insured is limited to the reasonable additional expenses incurred with the permission of your insurance company. The purpose of these expenses must be to maintain the normal operation of the business.
  • Fines and penalties for breach of contract: This section provides cover for any fines or penalties that become payable as a result of non-completion or late completion of orders.
  • Beware of under-insurance!

What else can be added to this type of cover?

There are a number of extensions that can be added to this section of your policy, not least of which are:

  • Specified/unspecified suppliers/subcontractors extension: covers interruption of your business as a result of damage to the premises of specified/unspecified suppliers/sub-contractors.
  • Prevention of access – extended cover extension: damage to property within a 10 km radius of your premises, which prevents access to your business. This applies even though your property might not be damaged.
  • Public utilities: damage to the property at electricity substations resulting in an interruption of the supply of gas, electricity, or water to your premises. Normal withholding of services by authorities is not considered.

To sum up, this is an intricate and fascinating area of business insurance, and definitely one that you should discuss at length with your broker. If you’d like to know how Business Interruption Insurance might apply to your business, then please give us a call today so we can tell you more.