CONSEQUENTIAL LOSS
This type of policy, often referred to as "business interruption insurance" is designed to indemnify the insured against loss of productive capacity or future earning power which may occur as a result of loss or damage to the premises and property insured under the Fire/Extraneous Perils in 1 above.
This policy is normally taken out in conjunction with the Fire Policy so that when the latter pays for the material damage to property insured under it, this will pick up the intangible loss that will flow from the primary loss of the Fire perils. The items usually covered under this policy are as follows:
a) Gross Profit
b) Salary and Wages
c) Auditor's fees
The sum insured to be indicated against the items of Gross Profit should represent the difference in turnover and the total of standing and variable charges.
The sum insured on Salary and Wages will be that which is required to maintain some key staff pending resumption of business while the sum insured on Auditor's Fees will represent charges that any firm of accountants will make in preparing papers for insurance claim.
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Consequential Loss Insurance protects your business from financial losses that occur after property damage, such as fire or special perils, rather than covering the damage itself. It helps maintain net profit, pay unavoidable fixed expenses, and fund temporary measures that keep your operations running. This policy also covers increased working costs, key staff wages, and auditors’ fees during recovery. The required sum insured is based on your gross profit and the estimated time needed for your business to return to normal operations.