Loss of Profit Insurance What and why are the coverage?

Loss of Profit Insurance What and why are the coverage?

The Loss of Profits policy covers the monetary loss occurring from a break in a business activity arising due to the physical loss of property by an event covered by insurance.

What is the coverage?

In general term, the Policy broadly covers loss of Gross Profit for business interruption, consequent upon Material Damage to property due to Fire or any other insured peril under the Standard Fire and Special Perils Policy.
It also covers standing charges which continue incurring during the interruption thereby increasing the working cost necessarily and reasonably incurred to support the business to its formal activity. Consequently, therefore, that loss under net profit and standing charges can avoid or mitigate.

It also covers standing charges which continue incurring during the interruption thereby increasing the working cost necessarily and reasonably incurred to support the business to its formal activity. Consequently, therefore, that loss under net profit and standing charges can avoid or mitigate.

An eye-opening for the bewilderment insured during the closed-door discussion between me, and insured’s finance controller.

Why need to cover the loss of profit insurance?

“Boss, by having fire insurance is not a perfect shield for your business empire, a complimentary policy utmost important for your factory with a workforce of closed a thousand. Let me introduce the Loss of Profit Insurance” I announced.

“What is that? Such policy exists?” they questioned me with their disbelief eye.

” Your factory premises and machinery all under financed with a local bank, a short-circuit would curtail the production flow, subsequently a reduction turnover, How shall you keep the monthly installment repayment to the bank in addition to ongoing costs like staff salary utility bills, lease payments or advertising. The board of Director and the top management lives on fresh air and the sunshine with dwindling in bank cash flow?

The owner and the finance controller trying to fob off me, “We really don’t need this kind of policy.”

Increase working cost

“Well, having some oversea buyers with the confirmed letter of credit at sight, can you offend your buyer by postponed shipment date? If so, how many times, is there no late penalty and your goodwill and credit-worthiness could restore when it tarnished. This policy would solve this temporary relocation cost and the rental cost to compile with the shipment date. Pouring salt on the wound, some supplier would inflate your buying cost price besides the logistics cost. Your creditor adds fuel to fire, giving a shorter credit payment term.  The maxim goes, misfortune always knock twice”

“The bank would close their umbrella during this trying time, and seek for a reduction of capital-outlay to your factory when the building blaze to the ground, coupling with these 2 events, Can you cope with  it?”

The following clauses are the extension of the Standard Policy for Loss of Profit Insurance.

Free of Charge Clauses:-

  • Denial of Access/adjoining Premises risk.
  • Alternative Indices.
  • Waiver of Material damage proviso.
  • Payment of account – cash call*.
  • Premium Payment.
Payment Clauses.
  1. Supplier’s and Customer’s premises.
  2. Upward adjustment Clauses 25%.
  3. Failure of supply from public utilities at least 48 hours.
  4. Accumulation of Stock.
  5. Department Clauses.
  6. New Business for 1st year only.
  7. Salvage sales.

*Payment of account: The beauty of this policy when an insured peril occurs, the insured can evoke by asking insurer for advanced payment at least 50% of the sum insured within 14 days’ notice without incurring any interest charges prior to finalize a report provided that it is a genuine claim.

How to derive adequate sum insured for Loss of profit Insurance will roll out soon?

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Thank.

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