Which calculation basis is used for Gross Earnings in Business Interruption Insurance?

In Business Interruption Insurance, the calculation of Gross Earnings typically involves the assessment of net sales that a business would have achieved had an interruption not occurred. This means focusing on the revenue generated from sales and then adjusting for the cost of goods that were sold or consumed during that period.

This methodology helps in providing a clearer picture of the income lost due to the interruption, while taking into account only the direct costs associated with producing those sales. By calculating net sales and subtracting the costs of merchandise consumed, the resulting figure reflects the earnings potential of the business that has been interrupted, making it crucial for accurately determining the compensation to be provided under the policy.

Other methods, while they consider important aspects of a business's financial performance, do not represent the Gross Earnings calculation relevant to Business Interruption Insurance as accurately as net sales minus the cost of merchandise consumed does. This approach gives a more realistic view of the economic impact of the interruption on the business's operational capability.