This type of cover is also known as Consequential Loss or Business Interruption. The Fire & Perils policy excludes consequential loss, so a separate Loss of Profits policy is required. Loss of profits following a major loss, like a fire or hurricane, is often responsible for putting a business out of operation if Loss of Profits cover has not been taken out – fixed costs such as overheads and wages still have to be met while no money is coming in. It is therefore prudent to have this type of coverage.
Perils To Be Covered
See under Fire & Perils.
Since material damage cover has to be in place before Loss of Profits cover can be given, there is usually no deductible applicable to Loss of profits. This is because the relevant deductible would be applied to the material damage policy.
The sum insured is based on the estimated annual gross profit (as defined in the policy) and the indemnity period required, the latter usually being 6, 12, 18 or 24 months. Just like for the material damage policy, the location, construction and occupation of the business premises are the main factors in establishing the rate to be applied to the sum insured.
Loss of wages and auditors’ fees can also be covered. Loss of wages can be covered on a duel basis – in full for an initial period and then for a chosen percentage for the remainder of the indemnity period.
The policy is adjustable at the end of the policy period, with a return premium due if the gross profit for the year has been less than the sum insured.
It can be seen that commercial general insurance is a complicated matter, and is best handled by a professionally-qualified insurance broker or agent, who will also be there for you in the event of a claim. For further information, please contact one of the insurance companies listed in our Bahamas Directory.
Nothing contained in this article should be construed as altering, amending or adding to any policy of insurance, cover note or binder. For full details of the policy cover, exclusions, restrictions etc., reference should be made to the policy document itself, a specimen of which will be supplied on request. Neither the author of this article nor his employers nor principals accept any responsibility for the accuracy or otherwise of anything contained therein.