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Machinery Loss of Profit Insurance

Safeguard your business with Machinery Loss of Profit Insurance. Protect against unforeseen machinery damage and ensure seamless operations.

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50 Lakhs
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What Is

Machinery Loss of Profit Insurance policy?

Machinery Loss of Profit (MLOP) insurance goes beyond merely repairing damaged machines; it covers the financial losses incurred when those machines break down. This policy compensates for the revenue lost during periods when your machinery is out of operation and addresses the additional costs required to get your business back to normal.

These extra expenses may encompass renting alternative equipment, paying for employee overtime, and expediting repairs. In essence, the policy aims to minimize your business's financial setback due to machinery malfunctions by accounting for both the drop in turnover (attributable to decreased production) and the spike in operational costs (resulting from expedited repairs and temporary arrangements).

Features of Machinery Loss of Profit Insurance Policy

  • This policy is typically taken out alongside machinery breakdown coverage.
  • It addresses the expenses related to machinery downtime, thus assisting the business in maintaining continuity and honoring its commitments.
  • The insurance covers till the damaged machine comes up and running to the state it was before the breakdown.
  • Unlike traditional property insurance, which focuses on direct physical damage, MLOP insurance targets indirect financial or consequential losses.
  • MLOP insurance takes care of the increased operational costs following a machinery breakdown.
  • The policy can be tailored to align with the specific requirements of the insured project.
  • It aids businesses in sustaining both operational continuity and financial stability throughout the recovery period following a machinery malfunction.

Who Needs

Machinery Loss of Profit Insurance Policy?

A machinery loss of profit (MLOP) insurance policy is pertinent and advantageous for an extensive array of businesses across multiple sectors. Below are some examples of businesses that could substantially benefit from this type of insurance:

  • Construction companies
  • Manufacturing firms
  • Energy and power utility plants
  • Automotive manufacturers
  • Textile industries
  • Mining operations
  • Companies specializing in electronic goods and technology components
  • All those manufacturing units where any machinery breakdown can lead to a break in the production line and eventually lead to loss of profit.

Why Get

Machinery Loss of Profit Insurance Policy?

When your business is highly dependent on machinery and equipment, a machine breakdown doesn't just create a glitch; it can precipitate significant disruptions. Such a failure can impede your operations, incur financial costs, and jeopardize your business. That’s where MLOP insurance steps in as a financial safety net. This insurance doesn't solely cover the costs of repairing or replacing malfunctioning machinery; it also accounts for additional expenses like emergency repairs and equipment rentals. Therefore, even in adverse conditions, your business can maintain operational continuity.

However, the benefits extend beyond machinery repairs. A machine breakdown can set off a domino effect, impacting everyone from suppliers to customers. MLOP insurance mitigates these secondary repercussions. Moreover, having such coverage sends a signal that your business is serious about risk mitigation, potentially enhancing your reputation and fostering greater trust among clients, suppliers, and partners. In essence, MLOP acts as a stabilizing force for your business, particularly during unexpected breakdowns.

Coverages & Exclusions in

Machinery Loss of Profit Insurance Policy
The coverages offered by an MLOP policy can be broadly classified as follows:
Loss of Gross Profit Due to Reduction in Turnover/Output
MLOP insurance compensates for the financial losses a business may experience due to reduced turnover or output resulting from accidental machinery breakdown. Insurance compensation is based on "gross profit," calculated by deducting operating expenses like wages, rent, and other fixed costs from the anticipated revenue. The insurer will remunerate the business for the discrepancy between the actual gross profit made during the indemnity period and the projected gross profit that would have been realized had operations been normal.
Increased Cost of Working
Following a machinery breakdown, immediate actions often incur additional costs to restore normalcy and limit financial losses. Businesses may need to expedite repairs, employ specialized technicians, or even rent substitute machinery. In some cases, operations may temporarily relocate, incurring extra labor costs. These additional costs, known as the 'increased cost of working,' are covered up to the policy limits.
Consequential Loss Cover
Unplanned machinery breakdowns can lead to production delays, supply chain disruptions, and consequent financial losses. The policy provides indemnification for these losses and covers income lost during downtime. Despite non-operational machinery, ongoing fixed costs like rent and salaries still accumulate, and the policy alleviates this financial strain.

Machinery Loss of Profit Insurance Claims Examples

Insurance Claim for Operation Halt
ABC Industries Pvt. Ltd, a mid-sized automotive component manufacturer, faces a critical assembly line disruption due to unexpected technical issues. This unexpected breakdown not only halts production but also leads to substantial revenue losses, strained customer relationships, and accumulating fixed costs. The company is further burdened by emergency repair expenses, technical support fees, and temporary equipment rentals
Fortunately, M/S ABC Industries Pvt. Ltd had prudently invested in a comprehensive Machinery Loss of Profit (MLOP) insurance policy. This policy compensates for the revenue lost during the period of halted production, thus cushioning the immediate financial impact. It also covers the ongoing fixed expenses, alleviating the financial burden of maintaining operations during the production standstill. Additionally, the policy takes care of expenses for expedited repairs, temporary machinery rentals, and any other incidental costs required for swift operational resumption. By addressing both the drop in turnover and the surge in operational costs, the policy ensures the preservation of the company’s projected profit margins.,From this example, it's evident that the MLOP policy served as a financial safety net for M/S ABC Industries Pvt. Ltd. The policy not only enabled the company to navigate the immediate financial hurdles caused by the machinery breakdown but also helped it maintain customer trust and resume operations efficiently.
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About Machinery Loss of Profit Insurance Policy

What is Machinery Loss of Profit? Plus Icon
How is Lost Profit Calculated? Plus Icon
How Does MLOP Insurance Work? Plus Icon
What's the Difference Between ALOP and MLOP? Plus Icon
Is it Possible to Claim Damages for Loss of Profit? Plus Icon
Why should you buy machinery loss of profit insurance at BimaKavach? Plus Icon

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Your Story
Indore-based BimaKavach caters to the Business Insurance needs of Small & Medium Enterprises

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

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