Fixed costs – the name says it all. These are the costs that a business incurs on a fixed basis and excludes costs of manufacturing or any other variable costs. If your business had to close down tomorrow following major storm damage, floods or an extensive fire and was unable to generate revenue for the period required to rebuild the premises, how do you plan to cover your fixed costs? There will still be staff costs, leases, insurance premiums, licenses and general running costs that will need to be paid while your business is being refurbished. Would you deplete your hard-earned profit that the business has managed to earn to meet these obligations? Or would you claim under your business interruption policy? A business interruption policy ensures that the business can continue to meet its fixed costs until the business has stabilised and is once more in a revenue-earning position.
Business interruption insurance covers you for the financial loss you suffer following the interruption of your business. You select the period you anticipate it would take for your business to return to expected levels of turnover. Your fixed expenses are covered to the extent of the drop in turnover below usual levels for the period. If no revenue is earned then all fixed costs will be met.
This type of insurance is relatively inexpensive and can be tailor-made to suit the requirements of your particular business. The policyholder can select the period of indemnity, which will depend on the time frame required to rebuild the premises and replace stock and machinery.
Optional cover available on most standard business interruption policies can include the following:
- Operating profit covers the reduction in your operating profit to the extent of the drop in turnover below usual levels for the period
- Additional working expenses covers the increased costs incurred to avoid or diminish your loss of profit for the period. This insurance is limited to the reasonable increase in expenditure incurred by the insured during the indemnity period, in consequence of damage, for the purpose of maintaining the normal operation of the business.
- SASRIA covers riot, strike and political unrest that may cause an interruption to your business
For the peace of mind offered by business interruption insurance it is worth every cent you pay in premium and the effort required to calculate the time frame and cover you may require should your business suffer severe damages.