HOW SHOULD WAGES BE INSURED?
The only way to provide a company with all the flexibility possible is to insure Wages 100%. If you intend to insure wages fully, you can leave all those items that make up the definition of Payroll, as part of the Sum Insured or Declared Value for Insured Gross Profit. To do this, you do not show Payroll or Wages as an Uninsured Working Expense.
Coach’s tip – I recommend that if the option is available to insure Wages separately (as in an ISR policy), the following should be listed on the Schedule: Payroll insured fully under Item No. 1 – Gross Profit.
ALTERNATIVE APPROACHES TO INSURE WAGES
There are several ways that Wages can be insured. The reason for this is to minimise the cost of insurance. However, it does not necessarily reduce the total cost of risk (“TOCR”).
The ‘it will never happen to me’ approach to business and life in general is alive and well. Yet, when considering the possibility of an insured event causing disruption to their business, it is felt far too often that it will not happen to them. It just goes to prove that the human mind can justify anything.
The benefits and disadvantages of each method are discussed.
The most common ways of insuring Wages are:
- Full wages cover.
- Part wages insured (essential/key staff).
- Insuring non-essential staff for short period.
- Insuring only a percentage of wages.
- Dual wages insurance.
- Severance pay.
Whatever method is adopted, a business should cater for the insurance of key or essential staff, plus severance pay of non-essential staff during the initial weeks following the damage. As has been repeatedly stated, total flexibility is only achieved by insuring Wages in full for the entire Indemnity Period.
In the following sub menu headings, the above common wage insurance methods are discussed in more detail.