ABC Co. Ltd. which operates a wholesale warehouse, had a fire on its premises on 30th April, 2016 which destroyed most of the building and stock worth of ₹10,160 was salvaged. The company has a Fire Insurance Policy (wit

The company ABC Ltd. is entitled to a claim payment under its 'fire Insurance' policy for the loss of stock, building and profits as the assets were destroyed due to a fire in its warehouse. A fire insurance policy covers all losses caused due to unforeseen or damage to property due to fire and other perils covered under the policy including: Dwelling Office Machinery, equipment accessories Goods, Stock material, semi-finished goods etc. The fire insurance policy covers all losses caused due to: Goods spoiled or property damaged by water used to extinguish the fire. Pulling down of adjacent premises by the fire brigade in order to prevent the progress of flame. Breakage of goods in the process of their removal from the building where fire is raging e.g. damage caused by throwing furniture out of window. Wages paid to persons employed for extinguishing fire. Loss of profit can also be covered on payment of extra premium as add-on paid along with a basic fire policy. It cannot be sold as stand alone basis separately as an independent policy. The sum insured under Loss of Profits policy should represent the gross profit of the indemnity period selected. The indemnity period is the maximum period required to put the business back into normal operation after damage to insured property by an insured peril. The indemnity period could vary from 6 months to 3 years. For indemnity periods up to one year, the annual gross profit should be selected as sum insured. For indemnity periods longer than one year, the Gross Profit (GP) should be proportionately increased. For example: Indemnity Period Calculation of Sum Insured 1 year (12 months) Annual Gross Profit x 1 2 years (24 months) Annual Gross Profit x 2 2.5 years (30 months) Annual Gross Profit x 2.5 3 years (36 months) Annual Gross Profit x 3 For the purpose of Loss of Profit insurance, Gross Profit (GP) is commonly understood to be the net Trading Profit plus Standing Charges (fixed charges). Usually, insurance companies will cover only those Standing Charges which have been specifically declared at the time of proposal.