Overview

Main Menu Name: Interrupt

Calculates the amount of business interruption insurance needed.

In this article:

• Background
• Why should I use this calculator?
• Getting Started
• Entering Data
• Results

Background

Business interruption insurance, often called "use and occupancy" insurance, protects against the loss of income because of the interruption of business when damage to property is caused by specified perils.

The insuring agreement of a business interruption policy states that the policy covers loss resulting directly from interruptions of business caused by damage to or destruction of real or personal property by the insured peril(s). The loss is the reduction in the flow of earnings to the business.

The actual loss of earnings is essentially the reduction in gross income that the firm would have received had no interruption occurred. This means that to determine the actual loss sustained it is necessary to deduct the non-continuing expenses of the business. Reimbursement would continue until the damaged property is restored or could have been restored with due diligence and dispatch.

How large is the potential loss a closely held business might incur? It is necessary first to determine the amount of expenses that would not continue during interrupted operations. These non-continuing expenses are subtracted from the business' projected gross income. Discounts and allowances are common revenue reductions. Certain employees can be laid off but the salaries of others may have to be continued.

Most firms should periodically reappraise the loss in profits that would occur in the event of a business interruption, and assess the amount of business interruption insurance (or alternatives) that should be carried.

Why should I use this calculator?

• To appraise the potential loss and appropriate amount of coverage for business interruption.
• To measure the amount of disability income insurance needed by a professional (profits would be lost just as surely as if the building in which the professional practices burned down).

Getting Started

Business interruption insurance, often called "use and occupancy" insurance, protects against the loss of income because of the interruption of business when damage to property is caused by specified perils.

The insuring agreement of a business interruption policy states that the policy covers loss resulting directly from interruptions of business caused by damage to or destruction of real or personal property by the insured peril(s). The loss is the reduction in the flow of earnings to the business.

The actual loss of earnings is essentially the reduction in gross income that the firm would have received had no interruption occurred. This means that to determine the actual loss sustained it is necessary to deduct the non-continuing expenses of the business. Reimbursement would continue until the damaged property is restored or could have been restored with due diligence and dispatch.

How large is the potential loss a closely held business might incur? It is necessary first to determine the amount of expenses that would not continue during interrupted operations. These non-continuing expenses are subtracted from the business's projected gross income. Discounts and allowances are common revenue reductions. Certain employees can be laid off but the salaries of others may have to be continued.

Most firms should periodically reappraise the loss in profits that would occur in the event of a business interruption, and assess the amount of business interruption insurance(or alternatives) that should be carried.

Entering Data

1. Gross Annual Business Income:  Enter the gross annual business income.
2. Discounts and Allowances:  Enter the amount of any discounts and allowances.
3. Net Cost of Merchandise or Stock:  Enter the net cost of the merchandise or stock.
4. Salary or Wages that May be Stopped:  Enter the salary or wages that may be stopped in the event of a business interruption.
5. Other Expenses to be Stopped:  Enter any other expenses that may be stopped in the event of a business interruption.

Results

The program calculates the gross earnings of the business and the business interruption insurance needed.