The physical damage to insured property is covered by Fire Insurance, however the resultant interruption in business during the period when the physical loss has happened until the time the business gets back to normalcy, there is loss of profits to the business which is covered under a Loss of Profits Insurance policy.
This policy usually goes hand in hand with the Fire Insurance policy thereby ensuring that both physical damage to the assets and resultant consequential losses to the business in form of loss of profits are adequately covered and so the insured is fully protected.
Pre-requisite for Loss of Profits Policy: This policy can only be taken if a Fire insurance policy exists for the risk.
WHO SHOULD BUY
Any commercial or industrial establishment that purchases a Fire Insurance policy can also effect a Loss of Profits policy but it is the industrial establishments, factory owners or power plant, thermal, solar plant owners who usually buy Loss of Profits policy.
KEY FEATURES OF THE POLICY
The Consequential Loss (fire) policy covers Loss of Gross Profit and /or increase in cost of working due to reduction in turnover / output due to operation of peril covered in the Standard Fire & Special Perils Policy.
The material damage Policy indemnifies the loss to the property insured due to the operation of insured perils. Even if the coverage under Fire policy is adequate and the claim is settled on reinstatement value basis the insured still has resultant losses which impact his profitability adversely. These is a financial loss as the consequence of operation of the peril and at times is larger than the material damage loss.
The policy covers Loss of Gross Profits during the selected Indemnity period. Indemnity period is the maximum period which is required to put the business back in the same position as it was before the occurrence of a material damage loss say for example a fire. This period depends on the nature of business and the industry in which the insured operates and can range from 6 months to 3 years.
Sum Insured should reflect the annual Gross profit if the Indemnity period selected is 1 year and proportionately increased or decreased based on the Indemnity Period chosen.
KEY EXCLUSIONS
• Loss or damage due to war & nuclear risks
• Loss due to a peril not covered under Fire policy
• Deterioration of undamaged stock after fire
• Loss of goodwill
• Third Party claims
