Profits Insurance provides protection against loss of earnings while your business is slowed down or shut down by fire or other insured peril.
The Fire Insurance on buildings, equipment and stock will recompense your for the loss of physical assets. But what about the continuing drain on capital?
Fixed Expenses, for example salaries of key personnel, rents payable and mortgage payments, do not decrease in proportion to reduction in Turnover. This relative increase in Fixed Expenses reduces Net Profit ... and there is a further reduction in Net Profit because of reduction in Turnover.
Even if Turnover is maintained by incurring extra expense, this increase in cost of working itself reduces Net Profit.
The protection needed will come from a sum insured covering "Gross Profits" which comprises Net Trading Profit plus Insured Standing Charges.
Net Trading Profit includes taxes payable on profit, and is based on the annual trading results.
Isured Standing Charges should include all expenses which do not vary in direct proportion to variations in Turnover. Note that most Profits Insurance claims arise out of interferences with business operations rather than total interruptions, and Fixed Expenses usually must continue to be paid in full although not fully earned by the reduced level of Turnover.
Salaries and Wages of executives, key personnel and other important employees, whose services would not be dispensed with in the event of interference or interruption, should be included in the computation of Insured Standing Charges.
Ordinary Payroll Expense (i.e. other than Salaries and Wages above). The loss due to Ordinary Payroll Expense not being fully earned by a reduced level of Turnover may be insured by endorsement.
- Sum Insured A "worksheet" is completed to determine amount
Contingent Business Interruption
The normal operation of the business may be contingent upon uninterrupted operations at locations owned by others.
If so, the business can be just as severely affected by damage or destruction at the premises of:
- suppliers of materials, parts or services
- suppliers of electricity, gas, water, heat or power
- those who store or transport your goods.
Protection against this kind of interference or interruption can be provided by Contingent Profits Insurance.
Well you are in good company with what has become a growing trend of more and more home based businesses. You'll probably agree, it has it's definite advantages and disadvantages, but one of the primary concerns (in our humble if not a bit biased opinion) has to be insurance. Or more to the point, the lack of insurance as all Home Insurance policies Specifically Exclude All Business Activity unless specially modified.
Outlined are some of the ways you can address this huge gap in coverage and protect yourself, family and property:
If you are an employee or in some cases, a contracted employee of a company, you can ask that your employer provide you with written confirmation that their corporate insurance extends to cover you and your business operations at your home.
You might want to go so far as to request a Certificate of Insurance that outlines the type of coverage, limits of liability, the insurance company it is placed with and expiry date.
Request that your Home Insurance policy be endorsed to cover your home based business operations & related property.
Depending on the insurance company that covers your home, this may not be possible as many companies will not extend their policies to cover any type of business operation, regardless of how harmless it may seem to you or me.
- Apply for a stand alone policy to cover your business operations and related property.
Typically your basic business insurance policy starts in the $750 per year range and depending on the nature of your operations, has the potential to attract a higher premium.
Now we get interactive!
We can do a little 'shopping' around for you if you wish. Simply complete the information on our Home Based Business Application and we'll get back to you with what we have found.
Or alternatively call us to discuss it further the old fashioned way... in person!
If you have any questions about your business insurance, please feel free to email us;