Having the wrong kind of insurance can ruin your business. No cash flow, wages in lieu of notice, ongoing payment of fixed expenses, relocation to alternative premises, advertising costs associated with relocation. These are just a few of the obstacles you would need to overcome if you were forced to close your centre due to unexpected circumstances such as a fire or storm damage.

This was the case for Rainbow Cottage, a community-run child care centre at Woolgoolga, near Coffs Harbour. Just over two years ago Rainbow Cottage went up in smoke – literally! A total loss fire destroyed the centre. To make matters worse, Rainbow Cottage had been situated on land owned by the local council even though the building was owned by Rainbow Cottage Inc. It took nine months to get approval from the local council for the new building plans, and almost two years to finalise the claim.

One major advantage Rainbow Cottage had business interruption cover with its previous insurer of only $80,000. Before the fire, the Guild Business Manager who arranged the Child Care Policy for Rainbow Cottage stressed the importance of having an appropriate amount of business interruption cover. Therefore, the sum insured on business interruption was increased to $400,000 with an indemnity period of 12 months.

In the case of above, the indemnity period applying to the Business Interruption cover was sufficient to preserve the ongoing viability of the centre. But in some cases the indemnity period can expire before the business income returns to its pre loss position.