Business Interruption
Why purchase
a Business Interruption Policy?
?
To protect _______
in the event of an
Insured Loss
Failure to recover
debts
Loss of goodwill
Under insurance of
the material damage
policy
By extraordinary
events taking place
during the
interruption
By restrictions
imposed by the
authorities on the
reconstruction or
operation of the
business
Cost of preparing
claims
The loss of or damage must occur at the premises used by the Insured
for the purpose of the business the address of which is stated in the
policy schedule;
What is TURNOVER?
The money paid or payable to the Insured for goods
sold and delivered and for services rendered in
course of the Business at the Premises.
Also known as :
Sales
Income
Receipts takings
Revenues
Fees
Royalties
etc.
Reference : Charles Taylor
What is TURNOVER?
There are 3 components in Turnover :
1. Fixed Cost (Standing Charges)
2. Variable Cost (Working Expenses)
Net Profit; 10%
3. Net Profit
What is TURNOVER?
Business Charges/Expenses
Business Charges/Expenses
BI Policy Cover
Loss of Gross Profit due to :
Clause (a) Reduction in Turnover, and
Clause (b) Increase in Cost of Working
Reduction in Turnover :
The sum produced by applying the Rate of Gross Profit to the amount
by which the Turnover during the Indemnity Period shall in
consequence of the damage fall short of the Standard Turnover.
(Rate of Gross Profit x Reduction in Turnover)
Increase in Cost of Working :
Additional expenditure necessarily and reasonably incurred for the
sole purpose of avoiding or diminishing the reduction in Turnover.
Looking at Accounts
Trading Accounts
Related to direct cost of making and/or selling stocks, e.g. The cost of
raw materials, wages, packing, carriage, utilities, etc.
Profit and Loss Account
Opened by bringing down the Gross Profit from Trading Account.
Left list of overheads that are not direct cost.
Right extraneous items of receipts, e.g. Interest receivable, rent
receivable, etc.
The balance between the two sides will be shown as Net Profit.
Trading Accounts
Opening Stock
40,000
10,000
Work in Progress
Purchases
500,000
Packing
46,000
Carriage
30,000
Salary
420,000
Electricity
10,000
Fuel
30,000
Gross Profit
459,000
1,545,000
Sales (Turnover)
Closing Stock
Work in Progress
1,500,000
36,000
9,000
1,545,000
Gross Profit =
(Turnover + Closing Stock + Work in
Progress)
Claim Documents