Your business has been going well and your turnover has increased, making more profit. What you may not have taken into account is to review your practice insurance, in particular the business interruption part of the policy. Dentists generally just keep renewing their practice insurance policy and don’t make sure the policy is fit for purpose.
Business interruption cover
When a major incident occurs at the practice, such as a fire or flood, you might instantly think about the buildings or contents (including specialist dental equipment) that will be damaged and the cost of replacing it. But what you might not instantly consider is the impact it will have on your loss of gross revenue.
If you have to close for a period of time then you need to ensure you have adequate insurance to cover this. This is known as business interruption cover.
A typical example is when you take over the practice – let’s say it is turning over £100,000. So, for a policy over 24 months, the cover would be approximately £200,000 worth of business interruption cover.
However, if the turnover increased to £200,000 then you should have £400,000 worth of cover (as a guide), but may only be covered for £200,000 if it hasn’t been reviewed and updated.
This would mean that in the event of a fire or flood you will be underinsured and may not get a full insurance pay out to repair the practice and get yourself up and running as soon as possible.
It is essential to review the policy and make sure your cover is up to date and current.
Make sure your policy covers:
1. Prevention of access to the property
2. Failure of public utilities
3. Loss of deeds and documents
4. Compulsory closure
5. Problems with unspecified suppliers
6. Loss of property in transit
7. Issues at contract sites
8. Book debts
9. Loss of property temporarily removed.
Of course, business interruption cover can extend beyond these major disasters. There are other potential scenarios that could lead to the loss of revenue at the practice. Therefore, you should ensure your policy covers things such as compulsory closure and problems with unspecified suppliers (see box entitled ‘Full protection’ for the complete list).
You will also need to check with your current insurance provider what excess period your policy has under the business interruption section. The excess period is the time frame that needs to expire before your policy will cover you.
Do you have adequate cover in respect of the indemnity period that your practice has should it need to close for repairs?
While it may be possible to get your practice back up and running within 12 months, for many properties this isn’t possible. Consideration needs to be made in respect of the planning regulations and processes, particularly if you have a listed property, as the process can take significantly longer than a year. I would recommend an indemnity period for listed properties of between two and three years and a minimum of 18 months for all other properties.
Dino Charalambous is a financial planner at Frank Taylor and Associates.