Consequential Loss Policy
The consequential loss policy is a type of fire insurance policy that covers businesses against financial losses due to asset loss or damage owing to fire or other insured risks. This policy is also known as business interruption insurance as it covers your business when it gets disrupted due to fire or other related disasters.
Features
- Business Interruption Coverage: This policy covers the loss that occurred due to business interruption occurred due to damage or loss of property caused by fire, explosion, lightning, etc.
- Customizable Coverage Limits: Business owners can customize this policy as per their needs. They can decide the duration of coverage, maximum compensation period, and extent of financial coverage they require.
- Income Protection: This policy ensures to recover of the lost income during the time when the business operations are disrupted or suspended because of damage to property. This involves fixed costs, lost profits, and additional costs incurred to curb the interruption.
Advantages
- Continuity in Business: During the time of disruption, this policy ensures the loss in business operations is covered. This ensures continuity in businesses and recover early from disasters. It thus, minimizes halt in business operations and customer service.
- Provides a Competitive Edge: As this policy is able to protect businesses during times of disruption, the businesses get an edge over its competitors who have not insured themselves under this policy. The competitors would face severe loss while the insured business can operate smoothly.
- Stable Financials: In order to cover the regular expenses, salaries, working capital of businesses, this policy acts as a constant source of income during times of disruption.
Disadvantages
- Different Premium Costs: Based on certain factors (for instance, revenue of business, industry, sector, and location) the premium amount varies. For business under high-risk industries have to pay a higher premium compared to other businesses.
- Process for Claim is Complicated: Under this policy, the issuers require a lot of documents and proof of damage. This verification process is time consuming and complex. If there is delay in the claim processing, then businesses might face further financial loss due to operations disruption.
Example
There is a company from the oil and petroleum industry, who have purchased this consequential loss fire insurance. This business is a risky business as if any fire occurred in the plants, the company would face a huge loss. But this loss can be covered by the insurance policy bought by the company. This can save the business from facing financial stress in times of crisis.