Learn how to calculate and assess business interruption insurance

Nothing in life runs smoothly one hundred percent of the time; hiccups happen. Often, they’re not a big deal, but if those hiccups affect your business, they can put your ability to trade at risk.

That’s where business interruption insurance comes in. It gives you the ability to cover the income your business may lose because of sudden loss or damage to your property or equipment. To work out your business interruption insurance needs, consider the following points.

What are the benefits and limitations of Business Interruption Insurance?

Business interruption insurance helps your business to ride out the effects of lost income from an unexpected event that stops you operating, such as a fire that destroys your premises or tools. It also helps you to cover additional costs that you might incur because of that event, like the increased cost of operating from a temporary location with hired equipment.

It’s important to note that business interruption insurance must be accompanied by business asset insurance, which covers material damage to your property or equipment. It’s also important to be aware that there’s a time limit on how long you can continue to claim for your business interruption losses – this is called the ‘indemnity period’.

When can I claim?

After an insured event, the act of making a claim on your business asset insurance will activate your business interruption insurance, and you can then claim against that too.

How much cover do I need?

Could you survive a week without trading? Or a month? It’s important to know how financially resilient your business would be if you couldn’t operate for any period of time. Working out a dollar figure can be difficult, but here’s a rough guide.

1.     Imagine a worst-case scenario, and how long that would interrupt your operations, in order to determine an indemnity period.

2.     Calculate your expected gross revenue over the indemnity period, based on last year’s figures and adjusted for expected growth.

3.     Calculate your expected gross profits (gross revenue minus costs).

4.     Work out how much it would cost to relocate and trade from a temporary site.

5.     Work out how much you would save by not operating from your normal premises (you may not have to pay all of your staff or cover building leases during this time).

6.     Add all the expected losses together and deduct the anticipated savings to get a final figure.

Your business is your livelihood, and it’s vital that it’s correctly insured to survive the unexpected. At Certus, we’re experts in business insurance, so call us today to make sure you have the right cover in place, at the right amount, to keep your business up and running when things go wrong.