There is much more to protecting the investment that your business is to you than simply insuring the physical assets of the business. The owners, shareholders, and/or those that have provided investment finance expect an income stream that will cover the financing costs, the costs of operating the business and an acceptable level of net profit to reward them for the business risk that they have taken, their entrepreneurial skill, a return on their assets, etc. The net profit and ongoing expenses including, payroll, management and other staff bonuses and financing costs are all regarded as insurable Gross Income or Gross Profit depending on the policy, but whatever it is called, these expenses should be insured. Without it your business may simply go down the plug hole in the event of a loss.
Business Interruption insurance is at its heart a policy of indemnity. This means that it is designed to put the Insured back in the same position, as near as money will allow, to that which they would have enjoyed but for the loss.
Typically following a fire or other insured peril occurring at a business premises some form of interruption to the business occurs. This disruption results in a reduction in insurable Gross Profit. This loss of insurable Gross Profit can occur through two possible causes. The first is a reduction in turnover. In other words a drop in sales will naturally lead to a loss of insurable Gross Profit.
- Some expenses are truly variable to sales (purchases) = A (use business on weekend)
- Other Expenses which may or may not continue if the business does not trade (rent, wages, electricity) = B
- Net Profit (loss) = C
- Insurable Gross Profit /Gross Income is = B + C