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A manufacturer had a fire at their premises and lost everything. When they took out their insurance they had decided that they could recover from any major event within twelve months and therefore had taken out insurance to cover them for loss of income over that period. 

Unfortunately, although the repairs and replacement machinery were covered by their property insurance, the extent of the damage and the specialist nature of their business meant that planning permission, building repairs, the lead time for machinery and time to regain lost custom would take three to four years. This was significantly longer than they thought, and they were seriously underinsured. 

The company needed to fund the costs relating to the loss of income themselves after the insured twelve-month period. Unfortunately, they could not carry these costs and sadly, the business closed with the loss of many jobs.

In addition to deciding the correct indemnity period, we recommend the following calculation should be used to establish the annual sum insured. Future budgets and contracts should be considered.

Turnover                                                            £

Closing Stock including 

Work in Progress                                             £

Total                                                                   £_________________


Opening Stock including

Work in Progress                                             £

Purchases                                                         £

Uninsured Working Expenses                      £

Total                                                                   £_________________

Difference                                                         £_________________

Increase necessary to allow 

for future trading and orders                        £_________________

‘Estimated Gross Profit’                                £_________________

  • Uninsured Working Expenses are business charges which can confidently be expected to reduce proportionately with a drop in turnover following damage (items such as carriage and packing often fall into this category. 
  • Bad debts are not insured. 
  • Your Sum Insured should include an amount in respect of Professional Accountants’ charges for producing and certifying details of a claim. 
  • Where the indemnity period exceeds 12 months the sum insured should be increased proportionately.