Profits based cover calculator

The cover is estimated by multiplying either the gross profits or the net profits. The typical multiples are 2 x gross profits or 5 x net profits. Gross profit is shown in the accounts as total sales less cost of sales or direct costs. Net profit should be taken before tax. Care should be taken with net profits as some companies will keep these artificially low. This method may not be suitable where several key people are covered, as it may be difficult to determine the contribution each individual makes to profits, although a higher multiple may be justified for a rapidly expanding business.

These are only guidelines. Underwriters usually want to establish that the cover is reasonable, so it's about building the case and justifying the level of cover.