Consequential Loss Policy
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This is a specially designed policy which covers accidental loss or damage to electronic equipment.
Generally insurance policies cover only physical damage to property by insured
perils. This, at best , covers the expenses incurred for repairing or replacing
the damaged property . But what about the financial loss suffered due to
interruption of business operations whilst the damaged property is being
repaired or replaced ?
This policy offers a solution by covering profit lost due to reduction in
turnover arising from interruption of business following damage to the property
This policy can be taken only in conjunction with Fire Policy or Machinery
This policy is also known as Business Interruption Policy or Loss of Profit
The policy covers:
Loss of gross profit
Increased cost of working
Add on covers
The Fire Consequential Loss Policy can be extended to cover loss of profit to
the insured due to :
Accidental failure of public electricity/gas/water supply
Damage to customer's premises due to perils covered under Fire Policy
Damage to Supplier's premises due to perils covered under Fire Policy
How to select the sum insured?
The sum insured under CL Policy (Consequential Loss) should represent the gross
profit of the indemnity period selected.
The indemnity period is the maximum period required to put the business back
into normal operation after damage to insured property by an insured peril. The
indemnity period could vary from 6 months to 3 years.
Upto an indemnity period of one year , the annual gross profit should be
selected as sum insured. Thereafter the GP should be in proportion to the
indemnity period selected i.e. for 18 months - 1 1/2 times the annual gross
profit for 24 months - 2 times the annual gross profit for 36 months - 3 times
the annual gross profit
The gross profit should represent the net trading profit plus insured standing
charges (fixed charges). The standing charges which are to be insured have to
be specified.Gross profit can be insured on one of the following basis :
How to claim?
The policy operates once there is a valid claim under the Fire Policy or
Machinery Breakdown Policy.
The loss of profit is measured by comparing the turnover/output /revenue during
the indemnity period with the turnover during the corresponding period in the
previous year (known as the standard turnover).
Hence loss of gross profit = Rate of gross profit X Reduction in turnover
= (Gross Profit / Annual turnover) X Reduction in turnover
The documents establishing reduction in turnover have to be submitted to the
surveyor appointed by the insurance company.
In addition if any extra expenses have been incurred to minimize reduction in
turnover the same are also payable subject to the overall sum insured.
Note: Policy details given are indicative, not exhaustive. Please contact your nearest NIA office for further details.
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