Know Risk is a community education program designed by the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) to improve our understanding of insurance and how it relates to managing the many risks we all face in life.
Business Interruption Insurance: which is right for you?
Choose the cover that suits you.
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The types of Business Interruption insurance available
Insurance policies use different terminology and take different approaches to the way they insure for business interruption. It’s important to ensure you match your needs to the insurance available and get the most appropriate. It is an important a decision for you and the ongoing success of your business so it is best to carefully consider your options rather than buying the cheapest or quickest available.
If something goes wrong and you need to make a claim, you do not want to find that you are trying to fit a round peg (your claim) in a square hole (your cover). It could be disastrous if it does not fit as you expect and need.
Under many policies there is more than one way to insure against financial losses as a result of business interruption. These are:
Option 1 – Traditional Cover
This type of cover is called different things by different insurers. This is most often referred to as Consequential Loss of Profits, Gross Profit, Annual Gross Profit, Annual Income, or Gross Income.
Option 2 – Weekly Income
This type of cover has been developed as a simplified cover for smaller businesses, particularly those just starting out. While this form of cover has its place it may not provide full cover to all businesses. If in doubt, it’s best to discuss it with your insurance broker or adviser who can explain and all the various covers available.
Option 3 – Additional Increase in Cost of Working
This cover has been developed for a business which has determined that they will not lose any income following any type of insured loss, but will need to increase costs to continue to operate in the case of an interruption. This may include relocation costs, overtime to staff, redirecting phones, internet, etc and advertising to customers of the change of address. While there is definitely a place for this cover it often is found lacking when the crunch comes. It is not recommended for use by manufacturers, retailers or in place of loss of rent cover.
Get the right advice
Besides these basic types of cover, each has different options about the additional benefits that they provide.
If you are in any doubt on which of the above options is best for your business, please discuss it with your insurance broker or adviser who can explain the differences for all the various covers available.