By Leigh Harper
Insuring your gross profit is just as important as insuring your assets.
The Insurance Council of Australia estimates that less than 50 per cent of small businesses hold a Business Interruption Insurance policy. This is concerning considering that small businesses have less chance of surviving a major policy loss without business interruption insurance.
Most business owners understand the importance of insuring their tangible business assets against natural perils such as fire, flood, storm and earthquake, but many may not consider the impact of being unable to trade for a period because of a catastrophic event.
When advising optometrists on their insurance needs, one of the first questions the Guild Insurance team asks is: ‘What would happen to your business if it were unable to trade?’
Business interruption insurance is one of the most important yet least understood classes of insurance for small businesses. It does not protect the business owner themselves such as ‘income protection’ insurance; it protects the ‘insurable gross profit’ of the business itself.
Following a claim where physical assets are damaged as a result of a natural peril, there will inevitably be a downturn in turnover and associated gross profit. Business interruption insurance seeks to indemnify the business for that loss of gross profit over a specified period, for example, six, 12, 18 or 24 months.
Even once the physical premises repairs are completed, the business does not necessarily return to the same level of gross profit it was earning prior to the damage occurring. Patients may be slow to return or may find an alternative practitioner.
Business interruption insurance can continue to make up the shortfall in gross profit even after you begin trading again, until such time as the business returns to pre-claim gross profit levels.
Setting the correct sum insured is essential to maximising your entitlements under the policy in the event of a claim and to avoid any costly exposure to underinsurance. Read Guild’s September 2015 advice on underinsurance for a full explanation.
Calculating your ‘insurable gross profit’ limit is not to be confused with accounting gross profit and therefore should be undertaken under the guidance of an insurance professional in the first instance.
Above all, you should ensure that business interruption insurance complements and is not a substitute for a sound business continuity plan. For more information on this and other policy provisions, speak to a Guild representative on 1800 810 213.
Optometrists who have shared their claims experiences with Guild Insurance all say they are ‘extremely likely’ to recommend Guild.
Insurance issued by Guild Insurance Ltd, ABN 55 004 538 863, AFSL 233791. Guild Insurance supports your association through the payment of referral fees. This information contains general advice only and does not take into account what you currently have, want and need for your personal circumstances. It is important for you to consider these matters and read the policy and/or the Product Disclosure Statement (PDS) before you make a decision about an insurance product. Subject to underwriting approval. Terms and Conditions apply (including exclusions and limitations). You can get a copy of the PDS by calling 1800 810 213.