Standard Fire and Special Perils Insurance: Protecting a Factory or Warehouse
If a fire reached your warehouse tonight, would your insurance rebuild it? The Standard Fire and Special Perils (SFSP) policy is the base cover for buildings, machinery and stock in India. It is simple in principle, but valuation and add-ons decide whether it is enough.
Key Takeaways for Policyholders
- ✓SFSP covers loss or damage to property from fire and a list of named perils, such as lightning, explosion, storm and flood.
- ✓Cover is only as good as the declared value. Underinsurance can reduce your claim.
- ✓Earthquake, terrorism and loss of profits are usually available as separate add-ons.
- ✓Small businesses may also see IRDAI-prescribed standard products for property cover.
What the policy typically covers
The SFSP policy covers physical loss or damage to insured property caused by fire and listed special perils. These generally include lightning, explosion or implosion, riot, strike and malicious damage, storm, cyclone, flood, impact damage, subsidence and landslide, bursting or overflow of water tanks and pipes, and missile testing operations. The exact list and conditions are in the policy wording.
| Property | Examples |
|---|---|
| Building | Factory shed, warehouse structure, office building, fittings |
| Plant and machinery | Production equipment, generators, installed utilities |
| Stock | Raw material, work-in-progress, finished goods |
| Other contents | Furniture, fixtures, office equipment |
Where the policy stops
- War, nuclear risks and wilful acts by the insured are excluded.
- Losses from electrical or mechanical breakdown without fire are generally not covered.
- Theft and burglary are covered under separate policies.
- Consequential losses, such as lost profit during rebuilding, need a separate cover or add-on.
The valuation trap
Underinsurance is the most common reason for a claim to be reduced. If your property is insured for less than its true value, many policies apply an average clause and pay only in proportion.
Illustration
A warehouse stock is worth ₹1 crore, but the policy declares ₹60 lakh. A fire destroys stock worth ₹30 lakh. With an average clause, the insurer may pay in the ratio 60 ÷ 100, which is ₹18 lakh, instead of the full ₹30 lakh. The difference falls on the business. Check the valuation basis, whether market value, book value or reinstatement value, and update it regularly.
Add-ons worth considering
- Earthquake cover, which is often an add-on rather than part of the base list.
- Terrorism and Loss of profit (fire) to cover the period when production stops.
- Debris removal and architects' fees for rebuilding costs.
- Floating stock if stock moves between locations. See also marine and transit insurance.
For smaller units, IRDAI has prescribed standard property products for micro and small enterprises, such as the Bharat Sookshma Udyam Suraksha and Bharat Laghu Udyam Suraksha policies, which cater to different asset sizes. Ask your Advisor whether one suits you. More on our SME insurance page.
If a loss happens
- Inform the fire brigade and, if needed, the police. Take steps to limit further loss.
- Notify the insurer or Advisor immediately, as the policy wording requires.
- Do not dispose of damaged property until the surveyor has inspected it.
- Gather stock records, invoices, accounts and photographs.
- Cooperate with the surveyor and submit the claim documents promptly.
Frequently asked questions
Does SFSP cover earthquake?
Earthquake cover is typically an extra, sold as an add-on to the base fire policy. Check the policy for details.
What is the average clause?
It is a condition under which, if the sum insured is lower than the actual value, the insurer pays only a proportionate part of the loss.
Is stock covered under SFSP?
Yes, if it is declared and insured. Stock levels change, so many businesses use declaration or floater options to keep cover aligned.
Does it cover loss of profit?
Not in the base policy. A loss of profit cover is available as a separate policy or add-on.
Talk to a Distroo Advisor
Want to see how this applies to your own situation? A Distroo Advisor can walk you through the options in plain language. Read more about SME Insurance or send us your question. Advice from Distroo is free for customers; any policy you buy is issued by the insurer at its standard premium.
This article is general information for awareness. It is not insurance, tax, legal or investment advice, and it does not guarantee any outcome. Product features, premiums, underwriting and claim decisions depend on the respective insurer’s policy wording and applicable IRDAI regulations. Always read the policy document before you buy.