Loss of profit insurance

Loss of profit insurance provides protection to the insured against:

1 Loss of net profit as a result of production shortfall or interruption following a fire accident.

2 Loss due to continued payment of fixed expenses Overheads following a fire incident (such as rent and fixed wages)

3 Additional expenses incurred by the insured to prevent or reduce the interruption of production, for example the rental of another building and other machines to re-engage in production activity.

* The material loss (such as the combustion of the stock) is concrete and specific but the loss of profits is not tangible can not be measured easily is unavoidable inaccuracy The first way to secure profits was to give the insured a percentage of the physical loss caused by the fire, but this measure Not fit in securing profits because lost profits can not be measured by physical damage

Profit insurance is subject to the following considerations:
1. To accept the insurance of profits must be a valid property insurance policy covering the material losses due to fire or any other additional risk so profit insurance is considered an additional cover on a property insurance document such as the fire document

2. The profit insurance policy covers the same risks as the insured against the physical damage document. For example, if the property document such as the fire document covers fire, lightning, storm and flood, the profit insurance policy covers loss of profits arising from fire, lightning, storm or flood

3. The profit insurance policy is subject to the same exceptions in the physical damage document as, for example, if a property document such as a fire document exempts fire from war or earthquake, the profit insurance policy is subject to the same exception

4. The insurance company must have accepted its responsibility for the material losses and accepted the payment of the compensation due to it prior to the disposal of the compensation of profits

5. The profit insurance cover may be granted by means of an addendum to the fire document provided that it is attached to the general conditions for loss of profits or by issuing a loss of profits insurance policy

What is the subject of securing profits?

The issue of profit insurance is the total profit but only the net profit plus the items of fixed expenses insured.

The sales turnover of the company is the money held by the company from the sale of goods and services and money receivable in the case of sale on the account, for example, when we say this doctor, the income of sales equals half a million pounds a year, it means that the fee is equal to half a million pounds a year and it is useful to reflect In how the insured behaves in the sales income and the insured acts in the sales income to pay the variable expenses and pay the fixed expenses and the rest is his net profit.

Variable charges in commercial companies are the purchases of finished goods for the purpose of selling them as well as the packaging materials, transportation costs and variable expenses of the industrial companies are raw materials and parts used in the manufacture of finished goods as well as packaging materials and transport expenses. There will be no loss, and if sales income decreases, these variable expenses will decrease, while standing charges will continue because they are due to perform even if the production stops and the sales and fixed expenses are stopped. Which are paid regardless of the volume of production or stops and expenses are fixed in the lease and the wages of permanent workers (the wages of temporary workers, such as laborers day laborers are considered variable expenses) and interest on loans used to finance equipment etc.

Sales income

Sales income = fixed expenses + variable expenses + net profit

Note that the cost of goods sold represents the largest variable expense item for the goods trader

Leave a Comment

Your email address will not be published. Required fields are marked *