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Unforeseen circumstances such as a fire, burglary, or flood, can interrupt your business for an extended amount of time and may even leave you unable to operate for anything from a few weeks to a few months. Such events are one of the biggest losses a business can suffer and are known as Business Interruptions.

Business Interruption Insurance exists to help your business recover after such events occurred. This type of insurance protects your business against loss of revenue during the time that you may not be able to supply goods and/or services to clients and will ensure that you can continue paying overheads and expenses such as rent and salaries during the period that you are closed. With Business Interruption Insurance, it will be possible for your business to return to the same financial state it was in before the incident occurred.

27-Nov
Business Interruption Insurance exists to help your business recover after such events occurred. This type of insurance protects your business against loss of revenue during the time that you may not be able to supply goods and/or services to clients and will ensure that you can continue paying overheads and expenses such as rent and salaries during the period that you are closed. With Business Interruption Insurance, it will be possible for your business to return to the same financial state it was in before the incident occurred.

Business Interruption Insurance should be a prerequisite for any company and is vital for the continuity of your business. Simply having Business Interruption Insurance is not sufficient. As business owner, you should make sure that your cover will not fall short when you require it most. If your cover is not adequate, your business may not survive being closed for an extended amount of time. To prevent this, here are 3 common issues you should be aware of:

  • Choose an adequate indemnity period
    The indemnity period is also known as your recovery period and should allow enough time for the reinstatement of your office, as well as the commissioning of new equipment, machinery, and anything else you need to run your business.

    This period should be long enough for your business to return to the same production and turnover levels that you managed to achieve before the incident.

  • Know the difference between Financial Gross Profit and Insurance Gross Profit
    Financial Gross Profit concerns your company’s direct manufacturing costs. Some examples would be electricity and water, factory expenditures and wages. Insurance Gross Profit, on the other hand, concerns uninsured costs identified by the business owner. By basing your Insurance Gross Profit only on uninsured costs, the rate of your Gross Profit will be higher, enabling you to pay ongoing expenses.
  • Miscalculating Gross Profit
    With Business Interruption Insurance, you are insured against applying the rate of Gross Profit to the reduction of turnover, not the total decrease in turnover.
The Gross Profit total should:
  • Incorporate VAT
  • Show a 12-month period in which the maximum indemnity period is a total of 12 months or less
  • Cater for increasing costs during the insured period

Estimating exactly how much cover your business requires against Business Interruptions is a calculation that could prove so critical, that your business’ survival could prove dependant on it. Reach out to our team if you would like an independent determination of your insurable risk. Contact our team directly or find out more on https://www.mmsgroup.co.za/consulting-services/.