Protecting a company’s income flow has been a major cause of concern in the recent past and this has become constant source of worry for risk managers. While almost everyone is aware that insurance to a great extent helps putting back a company on its feet after the loss, it is the intangible or the consequential loss which is difficult to perceive and in several cases forces the company to shut down without even making an attempt to recover.
While a normal fire or machinery insurance policy does help the company recover the material loss sustained, it does not protect them against all the losses incurred due to the fire or breakdown. The financial loss due to the loss of profits and the standing charges still being incurred after the loss with reduced or no income now being generated is what gets covered under the machinery loss of profits insurance.
Machinery loss of profit policy gives cover against consequential losses following loss or damage to the property insured under machinery breakdown and/or boiler and pressure plant insurance. This policy covers actual financial losses suffered by the insured due to business interruption arising from:
a) Reduction in turnover and
b) Increase in cost of working
A machinery LOP policy can be purchased only in conjunction with a Machinery Breakdown policy and cannot be taken as a stand alone policy. While it is a suitable means of protecting oneself completely against relevant losses, care should be taken in ascertaining the sum insured. The criticality of each machinery in the way it contributes to the overall turnover needs to be studied carefully as also the period required to get back to normal work.