This policy is an extension of the Fire/Extraneous Policy (as well as engineering/Industrial All Risks Insurances technically referred to as the primary cover) and is usually referred to as business interruption insurance. It indemnifies the insured against loss of productive capacity or future earning power that occurs as a result of loss or damage to the premises and property insured under the primary cover. Consequential loss also known as business interruption insurance indemnifies the insured against the loss of his / her or its productive capacity or future earning power that may occur as a result of unforeseen or sudden loss of or damage to the premises and property insured under the fire and special perils. In other words, this policy goes hand in hand with the fire and special perils policy.
It provides cover for businesses and corporate organizations to whom business interruption would mean heavy monetary loss in view of huge fixed costs levels. In many instances, it is procured in addition to the primary cover. This is done so that the pays for material damage to the property insured, while the Consequential Policy pays for the consequential or resulting monetary losses due to business interruption. Gross Profit, Auditor's fees, Salary and Wages are covered by this policy. Benefits Due to the business interruption following a loss, there is likely to be a reduction in turnover and this may affect the anticipated gross profit. Fixed costs are incurred immaterial of the production activity. The Consequential loss policy covers reduction in gross profit due to business interruption. The additional expenditure necessarily incurred for avoiding or reducing the fall in turnover during the interruption period is also covered under this policy. Premium The Premium paid depends on the value of cover. The value of the cover is determined by the following:
1. Gross Profit should represent the difference in turnover and the total of standing and variable charges for the estimated period of loss in productivity.
2. The cover on Salary and Wages will be the sum required to maintain the key staff that can run the business till resumption of business.
3. The sum insured on Auditor's fees represent charges that any firm of accountants will make in preparing relevant papers for insurance claim.
Requirements: Fully filled (Duly completed) Policy proposal form with all the details of the required cover. This will include value for Gross Profit, Salary, Wages and Auditors Wages. Once this has been done, the premium will be determined and once paid, the policy will be prepared.