Consequential Loss Policy

Consequential Loss Policy

Consequential Loss Policy also known as Business Interruption Policy is taken to cover potential loss of profit or revenue from business in case of reduction in production following damage to the insured property.

This policy is taken as an extension of Fire Insurance Policy (Standard Fire and Special Perils Insurance Policy) or Machinery Breakdown Policy.

This policy should be taken by all Organizations whether large or SME to protect their Financial Loss due to interruption in business following damage to its property.

Consequential Loss Policy covers the following financial losses.

  • Loss of Gross Profit
  • Increased Cost of Working incurred in minimizing the Loss of Gross Profit
  • Standing charges (fixed charges)

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Financial Losses arising out of following expenses can also be taken as add-on covers in the Consequential Loss Policy.

  • Wages of Workers
  • Auditor’s Fees
  • Public Utilities
  • Terrorism
  • Lay-off or Retrenchment Compensation
  • Customer’s Extensions
  • Supplier’s Extensions

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Sum Insured in Consequential Loss Policy should be an estimate of Loss of Gross Profit for the period that company anticipates to get its operations back to normal. This period starts from the day the damage to the property has taken place.

The maximum period of indemnity in Consequential Loss Policy would be 3 years.

Gross Profit = Net Profit + Standing Charges

Net Profit can be calculated based on any one of the following

  • Turnover of company
  • Revenue of company
  • Output of company

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Once the company has incurred an admissible financial loss due to a peril covered under Fire Insurance Policy (Standard Fire and Special Perils Insurance Policy) then the company can file a claim under Consequential Loss Policy.

  • If there is a reduction in turnover due to Fire Loss then the Insured should immediately register a claim under Consequential Loss Policy with Insurance Company.
  • Claim form duly filled and signed/stamped by insured should be submitted with insurance company
  • Insured should submit documents as a proof of reduction in turnover/revenue/output with insurance company
  • Standing charges document should also be submitted

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