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Fire Loss of Profit Insurance Policy

Protect your business with a comprehensive fire loss of profit insurance. Safeguard it from unwanted interruption caused by fire and other special perils.

Coverage worth

₹50 Lakhs

at just

₹7,000^*

annually

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What Is

Fire Loss of Profit Insurance Policy?

A fire loss of profit insurance is a type of business interruption insurance that covers the loss of gross profit due to fire and allied perils damaging insured property.

This policy can be combined with a standard fire and special perils policy to offer complete protection against losses from fire, flood, and other special perils. It covers elements such as lost revenue, fixed expenses, and additional costs necessary for resuming business operations.

Features of Fire Loss of Profit Insurance

Covers standing charges

Includes auditor fees

Ensures protection against loss of net trading profit

Accounts for the increased cost of working

Who Needs

Fire Loss of Profit (FLOP) Policy?

A fire loss of profit (FLOP) policy is beneficial for various businesses across multiple sectors. If your business could face significant financial disruption due to fire-related interruptions, consider securing a FLOP policy. Businesses that may benefit include:

Manufacturing companies
Retail stores
Service industries
Hotels and hospitality
Supply chain-dependent businesses
Warehouses and distribution centers
Entertainment venues
Technology companies
Educational institutions

Why Get

Fire Loss of Profit (FLOP) Policy?

Owning a business necessitates a Fire Loss of Profit policy for several critical reasons. A fire can lead to temporary or long-term business closure, during which revenue generation may cease. Standard property insurance policies cover physical damage but fail to consider financial losses from business interruptions. FLOP insurance fills this gap by covering potential income and profits that a business could have earned without the fire-related interruption. It also assists in covering ongoing expenses and mitigating the risk of long-term customer attrition.

Coverages & Exclusions in

Fire Loss of Profit Insurance Policy

CoveragesExclusions

The FLOP policy, when combined with a standard fire and special perils policy, offers comprehensive protection against losses resulting from covered perils such as fire damage and floods. The coverage can be classified as follows:

Protection from Loss of Net Trading Profit

The policy compensates the insured for the net trading profit that would have been generated if the fire incident had not taken place. This encompasses fixed costs, ongoing expenses, and projected profits. Coverage is restricted to a specific time frame—namely, the duration needed to restore the business to its pre-fire operational status. Additionally, the policy covers extra expenses that the insured incurs to minimize the loss of net trading profit. These may include costs for temporary relocation, expedited repairs, and any other actions taken to expedite the resumption of business activities.

Increased Cost of Working

In the event of a fire incident that interrupts business activities, there may be additional expenditures to maintain critical functions, speed up recovery, and resume normal operations. Known collectively as the increased cost of working, these expenses can encompass temporary relocation costs, expedited repairs, overtime wages, and any other measures undertaken to reduce the disruption duration. A Fire Loss of Profit policy covers these costs, facilitating a smoother transition back to normal operations.

Auditor fees

FLOP policies frequently extend their coverage to include auditors' fees. This ensures that expenses related to assessing and verifying financial losses in the wake of a fire incident are also covered. It alleviates the financial burden on the insured business by covering the costs of engaging auditors to evaluate the economic consequences of the interruption.

Standing Charges

Standing charges, also known as fixed expenses or overhead costs, represent the regular financial commitments that a business has to fulfill, regardless of its operational status. These expenses include items like rent, salaries, utilities, loan repayments, insurance premiums, and other fixed costs. FLOP policies take these persistent fixed expenses into account when the business ceases operation due to a covered peril.

Here are some extensions covered in FLOP policies in India:

Damage to a customer's premises due to a peril covered under the fire policy
Accidental failure of public electricity, gas, or water supply
Damage to a supplier's premises due to a peril covered under the fire policy
Costs of documentation for claims related to fire and loss of profits

Fire Loss of Profit Insurance Policy Claims Examples

Business Interruption Claim for an Electronics Company

Incident

Consider a scenario where "XYZ Electronics," an Indian manufacturing firm, undergoes a fire incident that severely damages its production facility. This incident results in a complete cessation of its operations, affecting its capacity to manufacture and deliver products to its clients. Beyond the tangible damage to the property, the business also confronts substantial financial difficulties due to the interruption.

Resolution

XYZ Electronics has a FLOP insurance policy bundled with its Standard Fire and Special Perils policy. This FLOP policy covers the costs of repairing and reconstructing the damaged property, including the manufacturing equipment, machinery, and the facility itself. This ensures that XYZ Electronics can promptly restore its physical assets to their pre-fire condition. Furthermore, the policy compensates for the loss of net trading profit that the company would have generated if the fire had not occurred. While operations are halted, XYZ Electronics still incurs fixed expenses like employee salaries, rent, loan repayments, and utilities. The FLOP policy covers these standing charges, mitigating the financial pressure on the business and averting additional economic setbacks.

About Fire Loss of Profit Insurance Policy

How can the loss of profit due to a fire be calculated in an insurance claim?

What does gross profit mean in business?

What is the interruption period under a Fire Loss of Profit insurance policy?

What is meant by contingent business interruption in a Fire Loss of Profit insurance policy?

What types of damages constitute lost profits?

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This is an article by YouStory written by Palak Agarwal and published on October, 2022

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