Why would you need Business Interruption Cover?

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What is business interruption cover

Business Interruption cover should be right up there on your list of priorities if you’re involved in any type of business with fixed monthly overheads.

The scary truth is that 4 out 5 businesses that don’t have any BI cover or have inadequate cover never get back into business and have to go into liquidation.

So it is essential that you have a broker who really understands BI cover and how to properly calculate sums insured.

After all, the show must go on…

Imagine for a moment owning a large industrial concern with 120 staff. One day a fire breaks out at your premises and the entire business premises is razed to the ground.

Suddenly you’re sitting with:

  • A massive salary bill
  • Vehicle payments
  • Water and electricity accounts
  • Telephone bill etc.

…and no money coming in with which to pay them all!

What would you do? Dismiss all your staff and declare bankruptcy?

Well, if you’re a forward-thinking business owner you would have made certain that you had business interruption cover in place. Also known as ‘loss of profits‘ or ‘consequential loss’ cover, the purpose of business interruption cover is simple.

It provides indemnity against:

  • Fixed costs – those expenses that continue regardless of your loss of turnover. Also known as ‘standing charges’.
  • Net profit – the net profit that would have been earned had the business not been interrupted.
  • Additional costs – the extra costs that are incurred so that the business may recover as quickly as possible.

How would you successfully claim under this section?

The turnover of your business after the damage is compared with the turnover for the corresponding period in the previous year and the rate of gross profit is then applied to the shortfall in your turnover. Remember, that if your business has seasonal fluctuations, that these are also taken into account!

Sometimes we find that business owners are reluctant to insure for their true gross profit amounts because they’re concerned that the insurer could disclose these figures to the South African Revenue Services. Bear in mind, however, that failing to disclose accurate figures could come back to bite you in the event of a claim. Resulting in possible under insurance.

Keeping your doors open and staying afloat during turbulent times is critical to the ongoing success of your business, so check back soon to find out more about the ins and outs of business interruption cover and how it actually works in our next blog!