Introduction:
Fire Insurance is concerned with CAPITAL LOSS following destruction of Building, Plant & Machinery, Stock in Process, Finished goods. Fire Loss of Profit insurance is concerned with LOSS OF EARNINGS consequent upon the capital loss as also any increase in cost of working incurred to minimize the loss of earnings. Only with both Fire & Fire Loss of Profit insurance FULL PROTECTION is obtained.
Scope of Coverage:
If the building or other property of the business, be destroyed or damaged by the perils covered under the Fire Policy and the business carried on by the Insured at the premises in consequences thereof be interrupted or interfered with then the Insurer will pay to the Insured. Amount of loss resulting from such interruption or interference in accordance with the provisions of the policy.
Definitions under FLOP:
- Turnover - The money paid or payable to the Insured for goods sold and delivered and for services rendered in course of the business at the premises.
- Insured’s loss - Net Profit and Standing Charges on the Turnover lost. (Termed as Gross profit)
- Net Profit - The profit before tax
- VARIABLE Charges : These are expenses that vary in proportion with the rise or fall in Turnover
- STANDING Charges: These are expenses that remain FIXED IRRESPECTIVE of the rise or fall in Turnover.
- Indemnity Period - is the maximum period of Interruption for which the Insurers would respond.
Basis of arriving at the Sum Insured:
Sum insured represents the annual GROSS PROFIT. This can be arrived at by any one of the following methods.
- Addition Method
Gross Profit = Net Profit + Standing Charges
Under this method standing charges to be insured are to be listed.
- Difference Method
Gross Profit = Turnover - Variable Expenses