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25 Cards in this Set

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  • Back
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4 sources of of Business Interruption losses

1. Physical Damage to business (fire destroys business)


2. Failure of Public Utilities (power line damage)


3. Transportation related accidents (railcar overturns causing evacuation)


4. Physical damage to neighbouring premises (busy shop bringing in traffic burns down)

3 sources of funding available to business when their operations are interrupted

1. Reduce capital reserves


2. Take out a bank loan


3. Take out adequate amounts of business interruption

2 key coverages provided by Business Interruption policy

1. Insure lost net profit of business which it could have earned if there was no loss (protect potential earnings)


2. Insure expense that must continue during period of business interruption (expenses that keep your business a float)

Period of indemnity provided by Gross Earnings Form

Begins date of destruction or damage and continues for time necessary to repair or replace damages

Period of indemnity by Profits Form

Begins date of destruction or damage and continues until pre loss sales have been reestablished

When would you recommend insureds purchase of Profits Form?

When customers need to be won back after shut down of business

5 characteristics common to all Business Interruption policies

1. Insure same perils covered on property insurance


2. Contracts of indemnity


3. Indemnity period not limited by policy expiration


4. Payment for expenses to reduce loss insured provided insurer saves more than client spends in extra expenses


5. Coverage provided when access prohibited by order of civil authority

3 examples of expenses to reduce loss that would be insured by Business Interruption policies

1. Over time salaries to contractors repairing business


2. Promotional materials required to provide awareness of new business location


3. Extra charges to bring in equipment by air instead of truck

Why should insureds cover their gross profit and not just their net profit?

By insuring gross profit of business, coverage would be available for necessary continuing expenses and not just lost profit

What may happen if only gross profits shown on insureds financial statements are insured?

Clients would find themselves in a position of underinsurance, because future trends have not been considered

Why should business operating with a loss purchase Business Interruption insurance?

When operating at a loss, business are less able to withstand even short interruption to business

2 factors to consider when deciding which form of business interruption insurance to purchase

1. Nature of business


2. Types of perils most likely to cause loss

When using old financial statement to establish amounts of insurance, what problems could be encountered?

Clients may be underinsured because future trends were not considered

What types of employee salaries may not be considered a 'necessary' continuing expense

Ordinary payroll (cashiers can be laid off not important)

Explain due diligence and dispatch provision found in Gross Earnings Form

Everyone involved in restoration of the business must act with due diligence and dispatch

2 situations which could cause insureds to purchase the 50% coinsurance option on Gross Earnings Form

1. When Sales are consistent month to month


2. When interruption will likely be short

4 provisions of the Premium Adjustment Clause found in Gross Earnings forms

1. Applications for premium adjustment must be made within 12 months of expiry


2. When losses were paid during policy period, premium is considered to be fully earned


3. 50% coinsurance basis forms are eligible for refunds up to 25% of premium


4. 80% coinsurance basis forms are eligible for refunds up to 50% of premium

When will payments be made when there has been an interruption by Civil Authority

Coverage available when there has been damage to neighbouring premises from an insured peril resulting access to be denied by Civil authority

How long is coverage provided when there is an interruption by Civil authority

2 weeks

Explain due diligence and dispatch provision of the Profits form

Only clients is required to exercise due diligence and dispatch

Describe how claims are paid with the Monthly Earnings Endorsement Form

Claims are limited to 25% of the amount of insurance for any 30 consecutive calendar days

Describe the purpose of the Extra Expenses Form

There are certain business that cannot to afford to close during reconstruction after losses. This Form pays extra expenses incurred to get back into businesses as soon as possible after a insured loss

Insurance companies

When selecting amount of coverage for extra expenses Form, businesses should refer to a plan. What is the name of the plan and basis

Name: Business recovery plan


Basis: Worst case scenario

Why would some insured purchase extra expense along with gross earnings Form or profits Form?

Those forms require clients to reduce amount of business interruption loss by more than extra expenses incurred while reducing loss. Extra expense earnings does not.

2 types of fees can be insured by Business Interruption forms

1. Auditors fees


2. Professional fees (best protection, incurs all fees)