Loss of Profit (Business Interruption) under Fire Insurance
Loss of Profit (LOP) - also known as Business Interruption Insurance - is an extension of fire/property insurance that protects a business from financial losses due to interruption of operations following damage caused by insured perils (like fire, flood, etc.).
It does not cover physical assets -but covers the financial impact of business disruption.
What does Loss of Profit cover?
When a fire or insured peril damages your property, your business may stop or slow down. An LOP policy covers:
Loss of gross profit
- Reduction in turnover due to business interruption
- Loss of expected income during downtime
Standing charges (fixed expenses)
- Salaries & wages (key staff)
- Rent, electricity (minimum charges)
- Loan EMIs, interest
- Insurance premiums
Increased cost of working (ICOW)
- Extra expenses incurred to reduce loss (e.g., renting temporary premises, outsourcing production)
Important conditions
- LOP policy works only if there is material damage covered under a fire/property policy
- No claim is payable if there is no physical damage to insured property