Page 287 - DMGT303_BANKING_AND_INSURANCE

Banking and Insurance

Notes Benefits: The premium is limited to the actual amount of risk irrespective of the sum insured.
The liability of the insurer is concurrent under the policy. Provision for adjustment of premium
is an incentive to the insured to effect cover for the maximum amount.

Floater Declaration Policies

These policies combine the features of both floater and declaration policies. All rules relating to
floater policy and declaration policy apply in these kinds of policies except: the minimum
premium retention of the insurance company shall be 80% of the annual premium.
Minimum sum insured is Rs. 2 crore.

13.8.1 Consequential Loss Policy

Coverage and Suitability: This policy is suitable for business establishments and corporate for
whom business interruption would mean heavy monetary loss in view of huge fixed costs.
Fire consequential loss policy provides cover for:
1. Expenses and increased cost of working as a result of business interruption following a
loss covered by the fire policy.
2. This cover can be taken for the maximum period of the anticipated interruption in the
event of loss. In addition, the supplier's and the customer's premises on which the business
is dependent, cost of auditors fee (required to submit the monetary claim) can also be
insured.
3. It covers reduction in gross profit due to a reduction in turnover followed by interruption
of business.
The additional expenditure necessarily incurred for avoiding or reducing the fall in
turnover during the interruption period is covered under this policy.
4. Also, there are overhead expenses of running the business such as salaries, wages, taxes,
interest etc. which continue to be incurred in spite of the interruption of the production.
Premium: Premium chargeable depends on the type of industry/business, the anticipated gross
profit, indemnity period chosen and additional covers required. Refund of premium (not
exceeding 50%) can be claimed based on the actual gross profit figures as per the audited balance
sheet after the expiry of the policy.
Basic fire policy to cover the asset at the business premises is a prerequisite. For claiming
benefits under this policy the loss should be first admitted under the fire policy. Amount of
gross profit required to be insured, the indemnity period, details of the business premises to be
covered and additional covers required shall be provided in the proposal form.
This policy is of immense benefit especially in case of major fire loss, when the business operations
get interrupted resulting in reduced turnover and eventually in loss of profits. It is a well known
fact that fixed or standing charges have to be incurred immaterial whether there has been any
production or not. All these are not covered by the normal fire policy. It is here that the
consequential loss policy comes into force. Thus, for overall protection to the business and its
profitability, consequential policy is necessary in addition to the fire policy.

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Caution In floater policy the maximum sum insured at any one location should not be
more than 10% of the total sum insured.

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