A common misconception surrounding business interruption insurance policies is that insurance gross profit – which is used to set your sum insured – is the same as accounting gross profit. This is not the case.
If you use the wrong figure you risk being underinsured and not having the cover you need if you make a claim, which could mean disaster for your business. For example, you probably want to have cover for wages, so you can retain your skilled employees if a loss occurs and you cannot trade for a while. You need to use the correct definition to make sure items like wages are included in your sum insured.
Insurance gross profit is defined as: turnover less purchases, bad debts and any other expense deemed variable which will be defined in your policy (adjusted for year end stock and work in progress variation). The defined variable expenses can differ depending on which insurer you arrange cover with so it’s important to make sure you use a specialist broker to help you calculate the correct sum insured.
At Malago we believe in arranging policies that work when you need them – so will give the care and attention necessary to ensure the cover is arranged correctly.