Business Interruption Insurance

Aperçu

When fire guts a factory, the burnt machines are only half the disaster. The other half is quieter and often larger: the months of lost sales while the roof is rebuilt, the salaries and rent that still fall due with no goods leaving the gate, and the customers who drift to a rival and never come back. A standard fire policy rebuilds the walls. It does nothing for the profit that stopped flowing. That gap is what business interruption insurance was invented to fill.

In this lesson you will learn what business interruption insurance really covers, how a consequential loss differs from the material damage that triggers it, why no claim is paid unless a physical-damage claim has first been admitted, and how the indemnity period and the rate of gross profit turn a ruined trading year into a figure the insurer can pay. You will work the gross profit calculation examiners set every year, and see exactly where candidates throw marks away.

Objectifs

  1. Define business interruption insurance and explain the loss it indemnifies
  2. Explain consequential loss and distinguish it from material damage
  3. Identify the causes of business interruption and the material damage proviso
  4. Explain how the indemnity period and the gross profit figure are determined

Note de cours

Emeka owns a plastics factory in Nnewi. He insures the building and the machines for their full value, so when a fire tears through the plant he is confident. The insurer rebuilds and re-equips exactly as promised. Yet eight months later Emeka is close to ruin. Why? Because throughout those eight months his machines produced nothing, his biggest customers moved their orders elsewhere, and the rent, the bank loan and the wages of his key staff went on falling due with no sales to meet them. The fire policy paid for the bricks and the steel. It paid nothing for the profit that stopped. Business interruption insurance is the cover Emeka needed and did not buy, and it is one of the most heavily tested products in the syllabus.

Évaluation de la leçon

Félicitations, vous avez terminé la leçon sur Business Interruption Insurance. Maintenant que vous avez exploré le concepts et idées clés, il est temps de mettre vos connaissances à lépreuve. Cette section propose une variété de pratiques des questions conçues pour renforcer votre compréhension et vous aider à évaluer votre compréhension de la matière.

Vous rencontrerez un mélange de types de questions, y compris des questions à choix multiple, des questions à réponse courte et des questions de rédaction. Chaque question est soigneusement conçue pour évaluer différents aspects de vos connaissances et de vos compétences en pensée critique.

Utilisez cette section d'évaluation comme une occasion de renforcer votre compréhension du sujet et d'identifier les domaines où vous pourriez avoir besoin d'étudier davantage. Ne soyez pas découragé par les défis que vous rencontrez ; considérez-les plutôt comme des opportunités de croissance et d'amélioration.

  1. Business interruption insurance indemnifies a business for: A. The cost of rebuilding its destroyed premises B. The loss of income and continuing fixed costs while operations are interrupted C. The market value of machinery destroyed by fire D. The wages of casual workers laid off after a fire Answer: B
  2. The material damage proviso requires that: A. The business has traded for at least three years B. A material-damage claim on the same property and peril has been admitted C. The indemnity period does not exceed twelve months D. The insured pays an excess before any claim is met Answer: B
  3. A firm's gross profit for insurance is 30,000,000 naira and its annual turnover is 150,000,000 naira. Its rate of gross profit is: A. 15% B. 20% C. 25% D. 45% Answer: B
  4. During the indemnity period a firm's turnover falls by 40,000,000 naira. Its rate of gross profit is 25%. Its loss of gross profit is: A. 8,000,000 naira B. 10,000,000 naira C. 16,000,000 naira D. 40,000,000 naira Answer: B
  5. For business interruption purposes, gross profit is best expressed as: A. Turnover minus cost of sales B. Net profit plus insured standing charges C. Turnover minus all expenses D. Net profit minus standing charges Answer: B

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Questions précédentes

Vous vous demandez à quoi ressemblent les questions passées sur ce sujet ? Voici plusieurs questions sur Business Interruption Insurance des années précédentes.

WAEC SSCE - Insurance - 2015

Question 1 Rapport

(a)Define the term employer's liability in insurance.

(b)State three benefits that can be covered under employer's liability.

(c)State three causes of business interruption.

Voir la réponse