Business Interruption Insurance v2

[peterrolex01]

I'm about to start my first new business soon. A bakery. I've received business insurance quotes. One thing that really confused me was the two forms of Business Interruption Cover: Gross Profit and Gross Income.

I have two potential policies. One from Allianz offers £750k on Gross Profit, whereas the other from NIG offers £500k on Gross Income. Considering that I will make nowhere near £500k Gross Income at the end of the year, and barely any profit, how do I differentiate between the two?

Isn't Gross Income better as it offers coverage on groaa income loss upto £500k, whereas Gross Profit only covers any loss in profit? For instance, if I were to make £200k turnover, less £50k COGS equals £150k Gross Income, less £125k fixed and other expenses equals £25k Gross Profit.

If my business were to be stopped for a year, say due to flooding or fire, under one policy I'd be able to claim upto £150k, whereas under the second I could only claim £25k.

The two brokers I spoke to weren't able to convince me either way, as they didn't seem to know themselves.

 

[ImranR]

Hi.

The amount you would be paid is exactly the same under both. It's the method of calculation that is different.

Income cover is for businesses that don't have direct costs and therefore if they have an incident tomorrow, but still have the overheads, they would need to cover their full income. These are usually service based industries such as solicitors and accountants.

You're a bakery so if you stopped trading tomorrow, the only definite cost you would save is your raw materials and stock etc at £50k (taking your example). Thus you would need gross profit cover of around £150k per year but adjusted to factor in any trends for future years i.e. you need to ensure your cover will protect you if you have an incident on the last day of the policy year.

Most policies provide a silly high cover as a basic which looks great but is not anywhere near the amount that is usually required by small businesses.

Hope this helps

 

[peterrolex01]

thanks