Fire Loss of Profit Insurance

You can never predict or anticipate what will happen next, when you are in business or life. Anything can happen that can bring business operations to a sudden halt, which can stay for several months or even more than a year.

Material Damage: Like for instance, a major fire incident can result in material damage to the physical assets viz., Building, Plant & Machinery, Stock and Stock-in-process, Furniture, Fixture, Fittings etc.  

Consequential Loss: This material damage can indirectly result in stoppage of production and resultant loss of sales and profit thus affecting the balance sheet of the company. Balance sheet is affected because the assets have been destroyed by fire and it will take several months before the same is repaired and production is brought back to it capacity at the time of fire accident

Fixed Expenses: Whilst the repairs are being undertaken, various fixed expenses viz., salaries to permanent employees, interest payments on bank loans, rent of premises, directors fees, office and general establishment expenses, electricity charges, depreciation on physical assets of the company, provident fund, gratuity etc. have to be incurred month on month till the factory is put back into production. During this period of repairs there is no business and revenue but expenses continue to be incurred.

Options available: This is where having a Fire Loss of Profit Insurance helps.  The other name for this policy is Business Interruption Insurance (Fire ). It is also called as Consequential Loss Insurance

Protect your Balance Sheet: Fire Loss Of Profit Insurance policy is a policy that covers any loss of production and sales suffered by a business owner, leading to a reduction in business turnover which in turn can badly impact profits. In other words, it covers the loss of gross profit during the Indemnity Period due to reduction in turnover or due to business interruption faced by the insured, consequent to property destruction by an fire accident.

Benefits of the Policy

Fire Policy: Covers physical loss/damage to the assets and the policy reimburses the expenses incurred in repairing the same as per policy terms and conditions

Fire Loss of Profit Insurance ( FLOP ): The subject matter is the earning capacity of the property. Trading losses resulting from stoppage of business may arise in areas viz., Net Profit, Standing Charges and increased cost of working.


What’s covered

The insurance policy covers:

  • Gross Profit
  • Annual Standard Turnover
  • Indemnity Period
  • Any increased cost of working

What’s not covered

The insurance policy does not cover:

  • Any loss caused to the property by the wilful misconduct of the insured.
  • Any loss caused due to war or invasion.
  • Any loss caused due to restrictions imposed by a Governmental Authority.
  • Depreciation of undamaged stock after a fire accident.
  • Litigation costs connected with Fire or Consequential Loss claims.
  • Third Party Claims.
  • Loss of Goodwill.
  • Loss of Market.

Who Can Buy This Policy?

Any business enterprise can buy this policy provided they have a Fire Policy in place. Having a Fire Policy is a pre-requisite for availing Consequential Loss Insurance.

Insurance Cost

The insurance policy cost/premium depends on various factors that affect the risk, the nature of business, sum insured, and the indemnity period opted for.

Claim Proof

To claim the amount, it is vital that:

  • Books of accounts are fully made available to the surveyor for assessing any business interruption loss due to fire and allied perils.
  • Material damage claim for the said loss occurrence is admitted under Standard Fire & Special Perils Insurance.
  • Admission of claim under Consequential Loss would depend upon the admission of claim under Fire policy.