How is Business Interruption Insurance Calculated?
Business interruption insurance is a type of coverage that compensates for lost income during periods of disruption. Calculating this insurance involves several key components:
- Determine the Insured Value: Assess the total revenue your business typically generates. This can be calculated based on historical financial statements over a specified period, usually the past 12 months.
- Calculate the Gross Earnings: Gross earnings include income before expenses are deducted. This should reflect normal business operations to get an accurate estimate.
- Consider Fixed and Variable Expenses: While you will receive compensation for lost revenue, your policy may also cover ongoing expenses. Identify which costs will continue during the disruption, such as rent and salaries.
- Account for Indemnity Period: The indemnity period is the time frame for which the business interruption coverage will pay out. This can impact the total amount of coverage required and is generally specified in the policy.
- Consult with an Insurance Professional: Since each business is unique, consulting with an insurance broker can help tailor the coverage to match specific operational needs and risks.
Ultimately, the aim is to ensure that the business can sustain itself financially during an unforeseen interruption, allowing for recovery and continuity of operations.