What is Consequential Loss Insurance?

Consequential loss insurance, also known as business interruption insurance or loss of profits insurance, is a type of insurance coverage designed to protect businesses from financial losses resulting from disruptions to their operations. These disruptions could be caused by events such as fire, natural disasters, equipment breakdown, or other unforeseen circumstances.

Consequential loss insurance policy is often related to Industrial All Risks (IAR) insurance. While Industrial All Risks insurance provides coverage for physical damage to property and machinery due to a wide range of perils such as fire, natural disasters, theft, and accidents, consequential loss cover focuses on the financial losses incurred as a result of such physical damage or operational disruptions. In other words, consequential insurance complements IAR by covering the indirect consequences of the insured events.

consequential loss insurance

What does Consequential Loss Insurance Cover?

Lost Revenue

It compensates for the income that a business would have earned if its operations were not interrupted. This could include lost sales, contracts, or orders.

Fixed Costs

It covers ongoing expenses that a business still incurs even when its operations are temporarily halted, such as rent, utilities, salaries, and loan payments.

Additional Expenses

Consequential insurance may also cover extra expenses incurred to minimize the impact of the disruption or to expedite the return to normal operations. This could include costs related to relocating to a temporary workspace, renting equipment, or hiring additional staff.

Property Damage

Compensation for damage to physical assets caused by covered perils, such as fire, natural disasters, or accidents.

Equipment Breakdown

Protection for repair or replacement costs of essential equipment in case of mechanical or electrical breakdown.

The consequential loss cover terms, limits, and exclusions can vary depending on the insurance provider and the specific consequential insurance purchased, so businesses should carefully review and understand their policy to ensure adequate coverage for their needs. Customized insurance will guide you in getting an insurance policy that meets your business needs.