SavvyprobookkeepFor those who are passionate about business, the worst nightmare is having to suspend activities, even temporarily, due to some unforeseen event. After all, time and money were invested and the entrepreneurial spirit is simply averse to impediments of any kind. Therefore, when taking out business insurance , it is important to go beyond basic coverage and consider complementary options, such as loss of profits or fixed expenses insurance.
It works like this: while business insurance guarantees compensation for direct losses, those caused by events such as fires, explosions or other problems, such as machine breakdowns, theft of inputs, etc., lost profits insurance goes further.
It guarantees financial reimbursement for the period in which the company has to be closed for inspections, renovations and reconstructions — even because the bills to be paid don’t wait.
Well thought out, no? To learn more about the characteristics and advantages of this type of coverage, follow the post!
What exactly are lost profits?
Loss of profits are those that were unexpectedly suspended, that is, that ceased.
In the business world, they appear as a consequence of some important breakdown, such as a fire caused by electrical damage resulting from lightning strikes , to cite a very common example, which makes it impossible to immediately resume activities.
Maintaining a structure without producing generates tremendous losses for the company. Imagine having to redo all the planning with customers and suppliers and, on top of that, taking a hole in your budget? In addition to stress, the risk of going bankrupt due to financial losses is real.
What is loss of profits insurance?
Loss of profits insurance, regulated by the Superintendency of Private Insurance , is a type of additional coverage to business insurance (whose multi-risk policy guarantees compensation for damage to property).
It covers the loss of profit caused as a result of an accident to the company’s assets, causing the interruption of activities, whether partial or complete.
With the peace of mind offered by loss of profits insurance , the entrepreneur can focus and direct all his efforts to restructuring the business in the best possible way. After all, until everything returns to normal, financial stability is guaranteed.
How does it work?
According to the most recent sector update , made by Dow, loss of profit insurance can be taken out by opting for one or more coverages, such as loss of gross profit, loss of net profit, loss of gross revenue or even fixed expenses.
The insurer may also suggest other coverage, as long as they are directly related to the scope of lost profits and under the same compensation limit.
To this end, when drafting the policy, all possible events that could lead to accidents that could lead to the suspension of the company’s activities must be identified . At the end, the document needs to be adapted to the needs of the business.
For what size company is it recommended?
Loss of profits insurance is more suitable for large companies, due to the accuracy of financial reports. It even minimizes the risk of going bankrupt — due to a problem that compromises the asset structure.
Small businesses can use fixed expense insurance. Instead of considering profit, this type of coverage takes into account the fixed monthly cost of the business, making it a simpler calculation to make.
How to get the right choice of additional coverage?
Insurance brokers with a good business acumen often offer the possibility of extending business insurance coverage beyond direct property damage.
These professionals, in addition to finding good coverage and taking care of policy quotes , are able to fight for better payment conditions for their clients with insurance companies. Furthermore, they continue to provide advice even after hiring.
How is compensation calculated in the event of an accident?
In loss of profits insurance, the compensation aims to ensure the company’s operability, by maintaining its revenue, during the period determined in the policy.
To do this, the history of accounting reports is analyzed in a period of time that precedes the accident. Then, the amount of financial losses is estimated and, finally, the values are fixed.
Therefore, the company’s accounting must be accessible, updated and organized to serve as a basis for the insurance company’s calculations.
According to art. 402, of Federal Law 10,406, which establishes the Civil Code , compensation for losses and damages corresponds to the amount that was not profited, but not to the amount that would have profited from speculation or any investments.
In any case, if the estimated value generates controversy between the insured and the insurer, there is the possibility of calling in a reputable expert to make a second independent calculation.
How are the indemnity period and insurance cost estimated?
The indemnity period is carefully sized and specified in the policy. It corresponds to the time interval necessary to resume activities and recover the company’s normal rhythm. On average, it lasts up to four consecutive months.
The cost of insurance depends on the type of activity, insured value, revenue and also the indemnity period.
As seen, purchasing loss of profit insurance is a smart way to protect yourself and ensure peace of mind to focus on reestablishing the business, without burdening yourself with subsequent responsibilities for various claims.
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