Turnover minus purchases and variable costs equals gross profit. Although mitigating events that effect turnover throughout the evaluation period may need to be smoothed out, the loss formula looks at turnover over a defined period of timesuch as 12 months.
What does gross profit mean in insurance?
Wages are not removed from the Gross Profit sum covered because if you are unable to trade as a result of a severe loss, you will still need to pay your employees in order for them to remain your employees when you reopen. Gross profit is defined as follows in insurance contracts:
a the total of Turnover plus the closing stock and work in progress amounts
b the sum of the opening stock and work in progress quantities, as well as the amount of Uninsured Working Expenses
These are costs that you would avoid if you were unable to trade. They usually consist of the following:
This is the time period that begins when the material damage loss occurs and ends when the loss’s consequences no longer affect your business, subject to the policy’s Maximum Indemnity Period.
In most cases, the Maximum Indemnity Period is 12, 18, 24, or 36 months. The construction of your premises, the time it would take to commence planning for a rebuild, the availability of new machinery and plant, and if being unable to supply would cause your customers to go elsewhere should all be considered when determining the Maximum Indemnity Period.
Allowance should be made for future expansion of your business when determining the sum covered. For example, if your renewal date is 1 January 2015 and your indemnity duration is 12 months, you must ensure that the sum covered is sufficient to cover your estimated gross profit for the period 31 December 2015 to 30 December 2016, as a loss could occur on the last day of the insurance period.
What is rate of gross profit insurance?
Rate of Gross Profit – the rate of gross profit earned on turnover between the start of the business and the event date.
How do you calculate the gross profit rate?
Gross profit divided by net sales x 100 is the formula for computing the gross profit ratio. The gross profit is calculated by subtracting the cost of products sold from total net sales.
Does insurance gross profit include wages?
To get at a final amount, accountants frequently remove employee wages when computing gross profit. However, before deciding whether or not to remove wage roll for insurance purposes, the importance of the wage roll must be assessed. Underinsurance is frequently caused by this disparity in attitude.
Delay in start-up
- Delay in start-up (DSU) cover is intended to protect the portion of revenue required by the principal to service debt and realize expected profit.
- A big incident / a large number of minor incidents of damage to the works during the building phase (or) is likely to cause a delay in the project’s commercial operation and, as a result, its capacity to earn money for the principle / investor group.
- The works contract between the principal and the EPC contractor often states that the contractor is responsible to the principal for any project startup delays caused by his or his subcontractors’ mistakes.
- While some of these losses may be recoverable under the building contract’s “contractor’s delay penalties,” others may not be because the contract terms relieve the contractor of this responsibility for any risk explicitly assumed by the principal.
- While these risks may differ from contract to contract, “Force Majeure” events (earthquake, flood, or windstorm, for example) as well as other physical destruction or damage caused by any cause beyond the control of the contractor, subcontractor, or supplier are usually excluded.
- Furthermore, a ‘cap’ on liquidated damages generally limits the Principal / Investor Group’s ability to collect the full amount of revenue loss from the Contractors, leaving the Principal / Investor Group vulnerable to losses in excess of this limit.
- The Advance Loss of Profits Insurance only pays the principal’s interest if the project’s delay in starting up from the intended business start date, and the resulting loss of revenue, is caused to physical damage covered under the underlying:
Who can take the policy?
- The Principal has chosen this strategy because he stands to lose if a new project under installation / construction is not commissioned on time.
- The interests of project funders are sometimes incorporated as “extra insured.”
- Contractors / subcontractors cannot be included as joint insureds because they do not have an insurable interest (unlike in an EAR / CAR Policy).
- Gross profit loss as a result of a project delay caused by losses covered by the underlying storage cum erection insurance.
Q7. What does Sum insured mean?
- If the maximum indemnification period (Hyperlink) is more than twelve months, the gross profit or specified standing costs for that time will be prorated.
Q8. How should the insured decide the maximum indemnity period?
- The insured should choose the indemnity period based on the length of time it will take to replace crucial assets.
- Time spent on reordering, remanufacturing (if necessary ’made to order’), delivery to the job site, re-erection, testing, and commissioning
IMPORTANT -1
- The insured must take all reasonable steps to ensure that the work is completed on time.
- At the intervals specified in the schedule, the insured must supply the insurer with periodic status reports.
- The progress report must show how far work on the insured contract(s) has progressed in relation to any contractual work program submitted by any contractor.
- Any delays or prospective delays in the progress of work, as well as the impact of such delays on a potential claim under this section, must be identified in the progress report.
- any actions taken, or planned to be taken, to reduce the impact of any such delays
- If there is a discrepancy between expected and actual progress, the projected completion date may be revised with an endorsement on the DSU policy.
IMPORTANT -2
- The amount payable is always contingent on the actual loss suffered, which must be proven by the insured.
- As a result, there will be no recovery from the DSU insurance if there are no renters for a rental property or no purchasers for produced products.
The ‘Actually Attainable Gross Profit,’ on the other hand, can only be determined once the project has been operational for at least 12 months.
Gross Profit was attained (12 months after the actual business commencement date)
- As a result, for an indemnifiable loss at the outset. Only a ‘on-account’ payout may be available under the Advance Loss of Profits policy. The total sum due will be calculated once a period of 12 months has passed after the business began.
IMPORTANT -4
- occurrence that is covered by insurance (physical damage covered by the underlying Storage Cum Erection Insurance)
- Other factors that may be adding to the project’s delay are uninsured incidents and’slow work progress.’
- As a result, while calculating the financial impact of a delay, it is vital to take into account the cost of delays caused by uninsured events.
IMPORTANT -5
- If a project is delayed owing to insured occurrences covered by the underlying material damage policy, the project will be rescheduled.
- Any physical damage that causes a loss of profit and is covered by DSU must occur during the DSU insurance period / extended period (if any)
- Damage that occurs after the DSU is triggered is no longer covered by the policy, unless it is directly related to the repair or replacement of the initially damaged products.
Significant Exclusions
- Unless otherwise specified in the Delay in Starting Up Insurance Loss or Damage:
- By way of endorsement, covered under the underlying Storage Cum Erection Insurance (if any).
- Unless covered by the underlying Storage Cum Erection Insurance, loss or damage to fuel, feedstock, or any other materials required for the insured enterprise.
- Redesigning, modifying, adding to, or upgrading the insured property, or correcting deficiencies or flaws;
- Any fines or damages for contract breaches, late or non-completion of orders, or penalties of any kind
- Suspension, lapse, or cancellation of a lease, license, order, contract, or agreement results in a loss.
Conditions For Loss Settlement
- In the event of a loss of gross profit, the insurer must pay the following amount:
- the amount of turnover that would have been accomplished if the start-up delay had not happened
- If the annual sum insured is less than the amount determined by calculating the rate of gross profit by the annual turnover or, if the maximum indemnity period is more than twelve months, the equivalent period’s turnover, the amount payable is proportionately decreased.
- The insurer must pay the following amounts in respect of certain standing charges:
- the amount of turnover that would have been accomplished if the start-up delay had not happened
Fine-tuning / Adjustment Clause
- the outcomes of the insured business over the 12-month period following the start of the insured business
- any conditions that would have harmed the firm if the start-up delay had not happened
- any factors impacting the insured’s business after the start date of the insured’s business
- The final statistics shall represent the outcomes that the business covered would have achieved after the scheduled date of commencement of the business insured if the delay in start-up had not occurred as nearly as may be judged reasonable.
Increased cost of working
- the additional expenditure that was necessary and reasonable for the sole purpose of avoiding or reducing the decline in turnover that would have happened during the indemnity period after the time excess if the expenditure had not been made.
- The indemnity, on the other hand, shall not exceed the amount of interest loss guaranteed and thus averted.
How to claim
- Notify the nearest office as soon as possible, with a copy to the policy issuing office, so that a Competent Surveyor can be dispatched to assess the loss.
- give an account of all damaged or destroyed property, with estimated quantities based on their values at the time, date, and location of loss, excluding any profit of any sort
- cooperate with surveyors by providing the essential papers for loss assessment and liability determination.
- All additional insurances on the property at the time of the loss should be disclosed.
Documents required by insurer for processing the claim:
- Company received a copy of the claim notification, as well as a xerox of the policy and premium receipt.
- Police Panchnama / FIR / FIR / FIR / FIR / FIR / FIR / FIR / FIR (Forensic Deptt.)
- Photographs of damaged property demonstrating the amount of the damage and/or a video recording of the loss
- To prove the amount of the loss, the value of the damaged insured property shortly before the loss, and the value of salvage. Please make the fixed Asset Register, original Bills/Invoices, Repairs/Replacement Bills/Invoices, and stock Register available to surveyors/investigators.
- To prove the amount of the loss, the value of the damaged insured property shortly before the loss, and the value of salvage. Please make the fixed Asset Register, original Bills/Invoices, Repairs/Replacement Bills/Invoices, and stock Register available to surveyors/investigators.
- The occurrence of a flood, storm cyclone, earthquake, or landslide has been recorded in a newspaper cutting.
- Company received a copy of the claim notification, as well as a xerox of the insurance cover note/certificate/declaration and the premium receipt.
- Original carrier’s open delivery/non-delivery/short delivery certificate, signed and sealed
- a copy of the Regd. A.D. letter filing the claim with the carrier, as well as a copy of the monetary claim bill
- Copy of Regd. A.D. letter filing a claim with the Shipping Co./Air Carrier, together with a monetary claim and the shipping company’s response.
- Original bills/invoices/bills of entry of damaged property and repair/replacement bills/invoices to demonstrate the extent of loss.
- (This information will be made available to the surveyor.)
- Please make your stock register, original bills/invoices, cash memos, fixed asset register, bank statement, and cash-book/ledger available to the surveyor/investigator to substantiate the amount of loss.
What is the profit margin for insurance companies?
Profit Margins and Insurers Many insurance companies operate with margins as low as 2% to 3%. Smaller profit margins mean that even little changes in an insurance company’s cost structure or pricing can have a big impact on the company’s ability to make money and stay afloat.
Are gross revenue and gross profit the same?
While total revenue displays how much money a firm receives for selling its goods, gross profit reflects how much money it actually earns from those sales because it takes into account the cost of goods sold (COGS).
What is the difference between gross earnings and gross profit?
- The total amount of revenue earned by an individual/household or a corporation over a period of time is referred to as gross earnings.
- A person’s or household’s gross earnings are all of their earnings before deductions.
- Gross earnings are total revenue minus the cost of products sold for a company.
- The Internal Revenue Service distinguishes between gross earnings and adjusted gross income, which is the amount left over after certain above-the-line deductions are deducted.
How do you calculate gross profit ratio with example?
Formula for Gross Profit Ratio
- Opening Stock + Purchases*- Closing Stock + Any Direct Expenses Incurred = Cost of Goods Sold
What is an example of gross profit?
The money left over after deducting the costs of producing a product or providing a service is known as gross profit. By removing the cost of goods sold (COGS) from the revenue, you may calculate the gross profit. The gross profit of a corporation with $10,000 in revenue and $4,000 in COGS, for example, would be $6,000. This number can be found on your income statement.
To calculate the gross profit, you must first determine the revenue and cost of items sold. The whole amount of money you make in sales is referred to as revenue. The expenses directly associated to producing your products or services are included in the cost of goods sold calculation (e.g., raw materials).
You don’t include any running costs. Rent, insurance, office supplies, interest costs, and tax payments are all examples of operating expenses.