Page 288 - Fire Insurance Ebook IC 57

Fire and Consequential Loss Insurance

Important Points to Remember

n Fire insurance provides protection in respect of loss of or damage
to buildings, machinery, fixtures, goods etc. by fire and or other
insured perils.

n However, it does not provide protection to the insured who suffers
trading losses due to total or partial stoppage of his business.

n The object of loss of profits insurance is to make good some of
these losses.

Trading losses

(a) Net profit: This may be broadly described as margin of income
over all the expenses.

(b) Standing charges : These are overhead expenses such as salaries,
taxes, interest, etc. which continue to be incurred in spite of the
stoppage of the business.

(c) Increased cost of Working : This is the abnormal expenditure
incurred by the Insured to maintain the business, as far as
possible, at its normal level, so that the loss under net profit and
standing charges is avoided or at least minimised.

Turnover consists of the following three elements :-

a. Variable Charges : These are expenses incurred in producing the
goods (e.g., purchase of raw materials) which vary in amount in
direct proportion to the volume of business transacted.

b. Standing Charges : These expenses are fixed in amount
irrespective of the volume of business transacted or which cannot

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