Calculating Business Interruption

Indemnity Period?

The first thing you need to establish is the indemnity period on your business interruption cover. This is the length of time it would take you as a company to get back to trading levels following a total loss claim.

For instance, this could be following a fire which has totally destroyed your premises and production line. The time it would take to re-build the premises and machinery and get back to current production levels, This normally would be selected from a 12, 24 or 36 month period.

Level of Cover required?

Business interruption on Commercial Combined cover is normally issued on a gross profit basis, This is calculated as follows:-

The combined value of the turnover, closing stock and work in progress

Less

The combined value of opening stock and work in progress and uninsured working expenses.

(Turnover = Money paid or payable to your for goods sold and delivered, services provided in the course of the business at the premises)

(Uninsured working expenses = Purchases less any discount received and any discounts allowed)

The calculation on gross profit is essential to save money on your overall annual premium. A lot of companies make the mistake of taking business interruption cover out on their total turnover, which is over insuring as gross profit is what is being covered.