For the help of CS Foundation Students; I have prepared short notes in very precise form. These will not only clear the concepts; but will also be useful while attending theoritcal and practical question.
- INTRODUCTION :
- Insurance Policy is a Contract of Indemnity
- Insured Person (beneficiary), Insurance Company, Insurable Interest, Loss Assessors or Surveyors
- Inspection of spot where damages occurred & relevant books, papers and account of claims.
- Period of Indemnity- starts from date of occurance of fire and ends not later than 12 months. (Period of Indemnity is fixed by Insurance Policy).
- Average Clause : When asset and/or standing charges are not fully insured
- Standard Turnover : Turnover for the corresponding period (indemnity period) in the preceding year. (Useful to calculate loss of turnover due to fire).
- Special Circumstances Clause : Trend of the business or special circumstances affecting business.
2. Claim for Loss of Profit or Consequential Loss :
- Policy available only when asset is insured against loss of property and goods by fire.
- Admission of liability is only when loss of property is due to fire, but amount of claim of Loss of Profit is not at all related to amount of loss of property.
- Three risks are covered :
- Loss of net profits due to cessation of business activities
- Non recovery of standing or fixed charges
- Increased cost of working due to fire
- Maximum time : Period of indemnity or the period of dislocation whichever is less Policy available only when asset is insured against loss of property and goods by fire.
5. Method of Calculation :
a. Match the dislocation period with Indemnity Period in Policy
b. Gross Profit Ratio = NP + Insured Standing Charges / Turnover * 100 +/- Change
c. Calculate Loss of Profit by :
Turnover Lost (Turnover with special clause – Turnover Achieved) *GP Ratio
d. The Claim for Increased Working Cost will be limited to :-
A. Proportionate of IWC : -
IWC *(NP+Insured Exp / NP+All standing exp)
B. Maximum Saving of Liability of the Insurer
Reduction in Turnover Avoided * GP Ratio
e. Apply Average Clause to calculate Insurable amount of Loss of Profit
(Gross Profit on Annual Turnover preceding the Date of Fire
with effect of special clause)