The fire policy only covers physical loss or damage to the property insured but does not cover loss of profit arising from such physical damage. As a result of the loss or damage to the physical assets, the Insured is unable to carry out its planned level of business, thus leading to a fall in gross profits.
- CONTINUING OVERHEAD EXPENSES – which have to be met out of reduced earnings such as rent, taxes, interest on debentures, mortgages and loans
- INCREASE IN COST OF WORKING – necessarily incurred to overcome or to minimise the effects of damage upon the business such as renting of temporary premises, hiring of machinery or extra labour costs
- LOSS OF NETT PROFIT
- WAGES of employees not gainfully employed during the interruption period and payments to employees whose services are no longer required
The sum insured should represent the estimated annual gross profit and correspondingly be increased if the indemnity period is more than twelve months giving due consideration for variations and trends.
To encourage adequate cover at all times, up to 50% rebate of premium is allowed if the estimated profit levels are not achieved.