What is a Consequential Loss and can businesses insure against it?
When examining insurance polices for a commercial venture, you may well encounter the term consequential loss.
It is important that businesses have an understanding of the term, as well as how to safeguard against incurring a consequential loss through appropriate insurance. A consequential loss is a loss that has been incurred as a result of being unable to use equipment within a commercial property, or being unable to use the property itself. For example, if a natural disaster or accident causes damage to a shop and it is therefore unable to trade, this loss of revenue would be considered a consequential loss. A consequential loss is an indirect loss, as opposed to a direct loss, and so careful research when selecting insurance is imperative, as not all policies will provide this kind of cover.
Insurance may also be able to compensate for consequential loss even when no direct losses have been incurred. For example, if a power cut or breach of contract from supplier or business partner impacted your ability to trade, you may be able to be covered for this consequential loss. Each policy provider is different, so make sure to do your research when selecting your insurance.
How business interruption insurance can help
Business interruption insurance, also termed business income insurance, is a type of insurance that covers the loss of income that a business can encounter after suffering a disaster or accident.
This loss of income can be due to closure altogether, limited opening hours, or the process of rebuilding. For example, if there were to be a fire in a shop, damage to the goods for sale or property itself would be a direct loss. The loss of revenue while the shop closes to repair and order more stock would be the consequential loss. Certain businesses can certainly benefit from this type of insurance, such as retail establishments, along with pubs and restaurants. It can also be helpful for those working in trades, such as plumbers and electricians. If a fire or disaster damaged tools and equipment, business interruption insurance could provide much-needed financial support while they recover their consequential losses.
With this insurance, those affected can avail of financial support in the interim while getting back to trading, and can also cover things like employee salary too. It can be a helpful source of income if you have to rebuild or repair in order to reopen an establishment. When it comes to leasing property in a commercial building then, ensuring this coverage is in place is nothing short of crucial.
Written by: Nick Towns on Monday 12/10/2015