Business Interruption
Business Interruption: This coverage will pay for the loss of Business Income you sustain due to the necessary suspension of your “operations” during a business interruption caused by an insured property loss. There are different forms of BI Insurance available;
Profits: Business Income:
(a) Net Income (Net Profit or Loss before income taxes) that would have been earned or incurred; minus standing charges
Profits – Actual Loss Sustained includes:
- Net Income (Net Profit or Loss before income taxes) that would have been earned or incurred
- Continuing normal operating expenses incurred, including payroll
- Additional Coverages: Expenses to Reduce Loss, Civil Authority that prohibits access to the described premises due to direct physical loss to a neighboring property,
During Alterations and New Buildings construction and Extended Business Income
Extra Expenses: the actual and necessary Extra Expense you incur due to an insured direct physical loss or damage to property
Ordinary Payroll: costs incurred to for the entire payroll expense for all your employees except officers, executives, department managers, and employees under contract.
Rents: Loss of Rental Income as a result of an insured loss.
Claims Examples:
A manufacturer of tents incurs an insured fire loss and is forced to move out while repairs are completed.
Basic Example “BI – Actual Loss Sustained” calculation:
Expected sales (i.e. if the premises had not suffered damage) = $100,000
(Minus) Actual reduces sales due to loss = $20,000
Reduction in sales total = $80,000
Insureds normal Cost of sales 30% = $24,000
Total Reduction in gross profit = $56,000
(Add) Additional expenses (e.g. rental of temporary premises) – $10,000
(Add) Claim preparation costs (e.g. accountant’s costs) – $5,000
= Total BI Claim $51,000
Risk Management Resources
Business Continuity Plan – Creation Toolkit
Business Interruption Insurance
Benefits of Business Interruption Insurance