Page 289 - Fire Insurance Ebook IC 57

The Insurance Times

be reduced in direct proportion to any reduction of business
(e.g., Taxes, bank interest, salaries to permanent staff, etc.)
c. Net Profit : This is turnover minus variable and standing charges.

After a fire when the turnover is reduced, the variable expenses may
also be reduced in the same proportion in which case the insured
suffers no loss on this account.

But the standing charges do not reduce in the same proportion and
net profit too will beaffected.

The Measure of indemnity

n The measure of indemnity is the sum produced by applying the
rate of gross profit to the reduction in turnover during an agreed
period following damage.

n When the rate of gross profit is applied to the shortage in turnover
the amount of trading loss is ascertained.

n Indemnity period
n The profits policy provides indemnity in respect of loss of gross

profits during the indemnity period which is selected by the
insured.
n The indemnity period chosen by the insured may vary from 3
months to 3 years.
n The choice of the indemnity period would be mainly influenced
by the time that would be taken for reinstatement of the building,
replacement of machinery etc.
n It is in the interest of the Insured to select an indemnity period
which is of such duration that it will represent the longest

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