Gross Earnings Form
There are two policy forms generally used to insure loss of income to a business. Each represents a different approach to achieve the same result in the insuring of business interruption losses. There is the Gross Earnings Form and the Profits Form. This portion will focus on the Gross Earnings Form.
Gross Earnings = Total net Sales – Variable Expenses
In this approach, the Indemnity Period commences at the time of the loss and ceases immediately upon the reinstatement of the lost or damaged property. By ceasing payment at this time, the Gross Earnings Form assumes that the insureds are returned to the competitive position they enjoyed immediately prior to the loss.
There are a variety of Gross Earnings forms used to insure Business Interruption losses, all of which adhere to this approach. The basic form does not include an indemnity period. However, if a Premium Adjustment Clause is added or included, the period of indemnity will be 12 months but this period can be extended for an additional premium (i.e. 18 months, 24 months and etc.).
What types of businesses need Gross Earnings?
Gross Earnings Forms are suitable for businesses that are able to immediately start generating a comparable sales level to that which was achieved before the loss occurred. Once the doors are open for business, the insured is considered to be indemnified for their loss under this form. Thus, businesses that are unique and offer a specialty product or service with little competition will benefit from this type of insurance. When they open their doors they will have most of their customers back because they offer a product or service that cannot be offered by a competitor down the street.
*** For exact terms, definitions, limitations and extensions, please talk to your broker and refer to your final policy wording ***