Business Interruption Insurance
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What is Business Interruption Insurance?
So the business interruption policy will compensate if the company is forced to close or scale down its operations and suffers any income loss. The policy provides coverage for the business interruption period as defined by the insurer in the policy document.
What are the Types of Business Interruption Insurance?
1. Loss of Gross Profit Cover : This is the most common type of business interruption coverage. It provides compensation for the loss of profits due to a reduction in sales and any increase in the cost of working after the disaster.
The definition of gross profit in relation to insurance is different from that of accounting. Certain expenses will not be incurred by the business after the disaster strikes. These are typically variable costs that change in direct proportion to sales turnover. So if sales fall by 25%, there is an equivalent 25% reduction in such costs. They are also known as uninsured working expenses (UWE).
The objective of UWE is to not insure costs that will cease after the disaster occurs. By excluding such costs, insurance coverage can be optimized for the policyholder who benefits by paying a lesser premium.
The gross profit cover is primarily meant for businesses with high variable costs.
2. Loss of Gross Revenue Cover : Businesses with a lower proportion of variable costs can opt for a loss of gross revenue cover for any business interruption.
This policy covers the reduction in sales and any increase in the cost of working due to a disaster. This method does not entail the difficulties of calculating the gross profit. It is sufficient to know the sales turnover to provide accurate insurance coverage.
Gross revenue cover is more suitable for service-based businesses that have fewer variable costs. But it is advisable to study the business closely before buying business revenue insurance.
3. Increased Cost of Working Cover : The increased cost of working cover compensates the business for any additional expenses that arise after the disaster. This cover is included in both the gross profit and the gross revenue loss policies with an upper limit. It can also be bought as a standalone policy with no upper limits.
This type of interruption insurance is ideal for businesses that are highly resilient and just need some extra cash to bounce back after a disaster.
How Much Business Interruption Insurance Do I Need?
Time required for the business to recover
Safety and security features in the building
Time required to shift to a temporary location
Value of the plant & machinery, and equipment
Employee wages and daily operating expenses
You can consult the experts at Prominent Insurance Brokers to structure the right business income insurance coverage.
How Much Does Business Interruption Insurance Cost?
Nature and size of the business
Amount of insurance coverage
Claims history of the business
Frequently Asked Questions on Business Interruption Insurance
Business Interruption Insurance protects against loss of business income due to disasters, accidents, and other unforeseen events that may lead to the closure of the business.
Business interruption insurance gets triggered when the insured event causes physical damage to the business, which results in the closure of business activities.
The business interruption coverage lasts till the end of the business interruption period as laid out in the policy. This is generally the period from the beginning of the insured event till the damaged property is brought to its original condition.
Disclaimer: The Business interruption insurance or plan may have limitations, exclusions, and other terms and conditions that may affect coverage. It is important to carefully review the policy wording before making any decision.