What is Loss of Profit Insurance

The Loss of Profits Policy is formulated to cover the likely monetary loss occurring from break in business activity that may arise due to physical loss of property by an event covered for insurance.

Scope of Coverage

The Consequential Loss Policy (Business Interruption Policy) offers indemnity against loss of Gross Profit which is nothing but the sum of Net Profit and Standing Charges as a result of the loss of production caused by accident which is covered under the Material Damage Policy. Apart from covering loss of gross profit, it also covers Increased Cost of Working which relates to the expenses incurred for reducing or minimizing the reduction in turnover, but not any more than the loss that was purportedly avoided. This policy is always issued in conjunction with fire policy. The loss under this Policy is indemnifiable only when loss under MB policy is admitted. 

How is it settled?

The indemnity to be paid to the insured is arrived at by comparing the production achieved during the  preceding financial year. The policy provides for computation of a standard rate of gross profit (gross profit earned per turnover). This rate of GP when multiplied by the loss in production due to the loss derives the loss payable to the insured.

  • Loss of gross profits, which is not consequent upon property damage due to an insured peril
  • Loss due to material damage to property, difference between value of stock at the time of fire and the value at the time of subsequent replacement, deterioration of undamaged stock after fire
  • Cost of preparing fire and loss of profits claim

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