What is Business Interruption Insurance?

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What is Business Interruption Insurance?
Loss of damage to a property on account of any peril covered by fire insurance is not sufficient to cover other financial losses. Business Interruption Insurance often referred as 'Loss of Profits' and 'Consequential Loss Insurance' opted as an additional cover reimburses the insured for the profits as well as any ongoing fixed expense that is incurred during the time the business remain shut down. The policy pays until the time the business unit is fully restored.

Any calamity, for that matter fire, interrupts the normal course of business activities and businesses in the process lose immensely both in monetary terms as well as in competition. Other than restoration of the premise, fixed expenses are to be incurred without any likely earnings in the near future owing to the unit's shutdown. However, to offset such loss and to protect yourself against any such repercussion, businesses should opt for such a business interruption insurance plan. The plan will help the business unit to minimize loss of profit or earning.

Expenses and Loss of Profit covered for the insured peril for the insured business

Fixed payments covered by such a cover include mortgage, payroll, business premise and the policy shall also provide for 'loss of profits'. The policy also provides for overhead expenses that fall due and have to be paid despite halt of the trading activity. Other expenses for restoring the normal production capacity of the business, fees of the accountant etc. So, with it the insurance company takes the place of the company's customers and makes up for the lost revenue and hence the turnover.

Expenses not covered under Business Interruption Insurance:

Sum assured for the policy does not provide for any material damage; depreciation for damage asset; legal costs and third-party claims; loss of market share; loss of goodwill; other loss computed on account of discontinuation of business; fines and other penalties.

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Story first published: Friday, December 20, 2013, 12:12 [IST]
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