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BUSINESS INTERRUPTION INSURANCE: ARE YOU CORRECTLY COVERED?


I


n the UK businesses can be aff ected by various disasters, such as fl ooding and fi res, that could stop


your business from operating for a period of time. Property insurance oſt en protects your business’s buildings/structures, offi ce equipment, possessions and cash, however it doesn’t account for the loss of income that you may incur as a result of not being able to run your business for a sustained length of time.


WHAT IS BUSINESS INTERRUPTION INSURANCE?


T e Association of British Insurers defi nes business interruption insurance as:


“Business interruption insurance covers you for loss of income during periods when you cannot carry out business as usual due to an unexpected event. Business interruption insurance aims to put your business back in the same trading position it was in before the event occurred.”


FOR WHAT PERIOD SHOULD THE BUSINESS INTERRUPTION COVER PROVIDE BENEFITS AFTER AN UNEXPECTED EVENT?


Many businesses underestimate their requirement for business interruption insurance, with 67% of businesses covered for 12 months or less aſt er an unexpected event, however, most businesses require at least 18 or 24 months of cover, if not more, to return to the same trading position they were in before the event occurred.


When considering the appropriate period of cover under a business interruption policy, you fi rstly need


to understand the basis of cover that you require. A business interruption policy aims to replace the lost income and/or profi t which would have been achieved if the interruption to the business had not happened, not loss of sales, as some may believe. Business interruption insurance will also help businesses to continue to trade aſt er a material damage claim.


Mike Cherry, the Federation of Small Businesses (“FSB”) National Chairman said:


“It is vital that small businesses aren’t leſt in the lurch when the worst happens. We would encourage all small fi rms to make sure their current insurance arrangements off er suitable protection, to mitigate the risks of a businesses failure or constricted cash fl ow resulting from unexpected costs”


Under insurance can occur due to a misunderstanding of the basis for measuring revenue or gross profi t as defi ned in the policy. T e calculation is not the same as the accountancy convention. T e defi nitions in the policy are crucial for setting the sum insured.


COVER


Business interruption cover can vary from policy to policy. You need to make sure that you select a policy that properly protects your business.


1. BUSINESS INTERRUPTION •


It’s important to review ordinary payroll annually.


In the past, operators chose not to insure their direct labour costs, as unskilled labour was easily replaced. Consider if that’s still true for your marketplace today?


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