Consequential loss insurance is a type of business insurance related to losses to business property or equipment. This insurance policy provides additional coverage not normally included in our Standard Business Insurance.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

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. We will cover;

• Net profit which would have accrued if the fire incident/special peril had not happened.
• Fixed charges as interest, rents rates etc. which are compulsorily payable although no business activities is taking place in the premises again. These are called standing charges in the policy.
• Expenses which will help to facilitate the resumption of normal business and minimise loss of net profit e.g. hiring of temporary premises, engaging the services of extra staff or working overtime. This is called increased cost of working.
• Wages of staff whose services will have to stop immediately due to the fire damage – retained wages of skilled employees whose services are needed/for quick return of the business activities of the company.
• Auditors’ fee of the Auditors employed to prepare any claim under the policy.

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.