Shop Burned Down? Insurance Paid for Stock, But Who Pays the Rent and Salaries? You Need 'Business Interruption' Cover

🔥 The "Successful" Claim That Led to Bankruptcy

It is 2026. Mr. Sharma owned a thriving garment factory in Surat. One night, a short circuit caused a massive fire, reducing his inventory to ash.
Fortunately, he was smart. He held a ₹5 Crore Standard Fire & Special Perils Policy.

The insurance company paid him ₹5 Crores to rebuild the structure and replace the stock. The claim was settled in 3 months. Success, right?
Wrong.

Due to 2026 global supply chain delays, it took 9 months to import the new specialized machinery. During those 9 months, Mr. Sharma had Zero Income.
But the bills didn't stop. He still had to pay:
1. Bank Loan EMIs (₹5 Lakhs/month)
2. Key Staff Salaries (to prevent poaching)
3. Fixed Electricity Charges
By the time the factory reopened, he had drained his reserves and defaulted on his loans. He went bankrupt despite having "Full Insurance." Why? He missed the critical Consequential Loss (Loss of Profit) cover.

Standard Fire Insurance covers Material Damage (Assets like building and stock).
It does NOT cover Financial Damage (Lost Income).

Shop Burned Down?

What is 'Fire Loss of Profit' (FLOP) Policy?

This policy (also known globally as Business Interruption Insurance) kicks in after the fire, during the "Indemnity Period" (the time it takes to restore operations).

It pays for three critical pillars that standard policies ignore.

• 1. Net Profit: The profit you would have earned if the disaster hadn't happened. (Calculated based on your previous year's turnover/balance sheet).
• 2. Standing Charges (Fixed Costs): Rent, Loan EMIs, Salaries of permanent staff, Taxes, and Insurance premiums. These bills don't stop just because your shutter is down.
• 3. Increased Cost of Working: If you need to rent a temporary warehouse or office to keep the business running while repairs are done, this policy covers that extra rent.

The Critical Decision (Indemnity Period)

When buying FLOP insurance, you must choose an Indemnity Period.
This is the maximum duration the insurer will pay you.

The Trap: Most agents suggest 3 or 6 months to lower the premium.
The Reality: In India, getting municipal approvals, importing machinery, and rebuilding takes much longer than anticipated.
If you choose 6 months, but it takes 12 months to restart, you are on your own for the last 6 months.
Recommendation: Always choose at least 12 to 18 months. The premium difference is negligible compared to the bankruptcy risk.

The "Material Damage Proviso"

There is one legal catch. You cannot buy FLOP insurance in isolation.
It must be linked to a Standard Fire & Special Perils Policy (Material Damage).

The Rule: The FLOP policy will only pay out if the claim for the material damage (the fire itself) is admitted and paid. If the fire claim is rejected (e.g., due to gross negligence or arson), the Loss of Profit claim is automatically rejected too.

🛡️ Chief Editor’s Verdict

Don't insure just your walls. Insure your livelihood.

1. For Retailers: If you run a shop in a mall, this is essential. If the mall burns down, you can't trade. FLOP pays your profit while the mall is rebuilt.
2. Cost: It typically costs 50% to 75% of your standard fire insurance premium. It is a small price to pay to ensure your EMIs are paid while you sleep.

A fire burns assets. Without FLOP, it burns the future.

Jurisdiction Warning (India Only): This article applies specifically to the Indian General Insurance Market (regulated by IRDAI). The terms "Standard Fire & Special Perils" and "Consequential Loss (Fire) Policy" are specific to Indian policy wordings. US/Global Readers: This is equivalent to "Business Interruption Insurance" or "Business Income Coverage," but policy terms and "Waiting Periods" differ significantly. This content is for educational purposes only and does not constitute insurance advice. Always consult a licensed corporate insurance broker.