If you own a business, consequential loss insurance may be an insurance option you should consider to protect losses that are not covered under standard business insurance. Consequential loss insurance is a type of business insurance related to losses to business property or equipment.
Definition of Consequential Loss Insurance
Consequential loss insurance would cover business losses that arise from damage to an insured property. Consequential loss insurance policies diminish indirect risks that arise from a situation and are typically offered in combination with regular business or property insurance. Consequential loss is considered an indirect loss, as opposed to a loss from a natural disaster or accident.
Benefits of Consequential Loss Insurance
There are several benefits to having a consequential loss insurance policy. Normal insurance policies generally cover the cost of repairing or replacing damaged property, but consequential loss insurance will cover additional financial losses that your business may incur as a result of such damages. Consequential loss insurance is a solution to cover your profits and business interruptions. It can be purchased in conjunction with a standard business policy at a much smaller cost than the effects your business could endure.
Coverage of Consequential Loss Insurance
Consequential loss insurance is not intended to cover actual property damage from storms, fire or theft. It is designed to cover the financial losses due to interruption of business while a damaged property is being repaired or replaced. Consequential loss insurance will cover profits lost due the interruption of business. It can also cover increased cost of working, as such related to the working facility being unusable momentarily during repairs. Salary and wages can also be covered under consequential loss insurance.
Determining Your Consequential Loss Insurance Needs
The amount you will need to ensure under your consequential loss insurance policy depends on the gross profit of a specific time frame. Most insurance companies will determine the time frame based on the maximum time it would take to get the business back to normal operations after damages occur. The annual gross profit should equal a portion of the selected time period and should represent the net trading profit plus any standing charges. The sum insured should be representative of the difference in turnover and total variable and standing charges.
Exclusions of Consequential Loss Insurance
Consequential loss insurance is designed to cover financial losses in the event of a business property needing to be repaired or rebuilt because of a named peril. It does not cover business interruptions unrelated to such events named in your business insurance policy. Typical named perils are storm, fire, theft and vandalism. Most consequential loss insurance policies will not cover financial losses of unnamed perils, such as war, invasion, flood or other events.
Consequential loss insurance is a smart choice for businesses who are already purchasing property or business insurance. It will help protect financial profit losses and give you peace of mind while rebuilding or repairing your business property.
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