Consequential Loss Cover –Fire Loss of Profits

 

 Consequential Loss Cover –Fire Loss of Profits

One of the requirements at the beginning of a new venture is insurance .It is mandatory as banks insist on insurance as a security to offer loans. Standard Fire & Special Perils policy indemnifies only physical loss or material damage to buildings, machinery fixtures, stocks etc. by fire and / or other insured perils. However indemnity for material damage does not provide protection to the insured for trading losses due to total or partial stoppage of his business following a fire.

The trading losses which result are:

a)     Loss of Net profit

b)     Continuing Standing charges

c)     Increased cost of working

Consequential Loss Cover – Fire Loss of Profits – FLOP is the most suitable to cover such risks of trading loss after a Fire loss.

WHAT IS INSURED UNDER A FLOP POLICY?

FLOP Specifications / Terminologies Items insured under the policy are defined below:

Gross Profit = Net profit + Insured’s standing charges

Net Profit = the net trading profit (exclusive of all capital receipts and accretions and all outlay       properly chargeable to capital) resulting from the Business of Insured at the Premises

Standing Charges = which do not vary in direct proportion to any reduction in business and continue to accrue in spite of stoppage of business

Examples are: Salary, Wages, all social security contributions, and perquisites, Pension Interest on loans, bank overdraft & Deb.  Rent, rates and taxes Depreciation Power / Electricity charges (Minimum charges), Water, Heating, Lighting etc.

Increase in Cost Of Working: Overtime wages, additional rents, advertising charges

Sum Insured should include all these points above for adequacy of amount in the event of a loss. A higher Sum Insured must be opted as the Policy can be adjusted at the end of the policy period and excess premium, if any shall be refunded by the Insurers. This will ensure that there is no underinsurance as and when any claim is reported.

PERILS COVERED

All perils covered under the material damage policy, additional perils if covered under Fire Policy may be included (Optional), to be decided at the time of inception.

IMPORTANT POINTS:

Ø  It is prerequisite that the property to be covered under FLOP should have a material damage fire policy and fire or other perils must occur at the insured’s premises i.e claim must be admissible under the Fire policy.

Ø  Property must be destroyed or damaged

Ø  Business must be interrupted or interfered with, as a consequence

PERIOD OF INSURANCE: The annual period during which the insurance company bears the risk

INDEMNITY PERIOD: represents insured’s estimation of the maximum period required for normal business operation to be restored following a loss .Can be any period between 3 months to 36 months

INTERRUPTION PERIOD: actual period of interruption starting from the date of loss/ damage till the date normal operation has been restored.

TURNOVER: The money paid or payable to the insured for goods sold and delivered and for services rendered in course of the business at the premises

ANNUAL TURNOVER: The turnover during the twelve months immediately before the date of the damage

STANDARD TURNOVER: The Turnover during that period in the twelve months immediately before the date of the damage which corresponds with the Indemnity Period.

Proper planning and execution of any Venture will minimize unnecessary delays and Insurance is the safe bet to financially secure from unforeseen losses.

We at Zen Insurance assist in choosing the right Insurance Cover for your Units. Plan your Insurance Program wisely and contact us for assistance.

 Disclaimer:   

Zen Insurance is an IRDAI registered broker which facilitates quick & accurate insurance broking services. We deal with only regulator approved products of insurers. We do not underwrite the products.