Wholesalers, retailers or distributors often taken the factory and warehouse insurance policy to protect the stored goods or other items against the said perils. In a factory and warehouse insurance, a declaration policy takes care of the frequent fluctuations in stock or stock values. Stock stored at a warehouse or factory may include raw materials or finished goods.
In the declaration policy for a warehouse or a factory, the minimum sum insured can be for one or more location. But this amount of sum insured must not be less than a pre-defined amount in the policy for at least one of the locations. The policy does not allow a reduction in the sum insured.
In case of a warehouse or a factory, the monthly declarations are to be submitted to the factory and warehouse insurance company latest by the last day of the next month. These declarations can be based upon:
- Average of the value at risk
- Highest value at risk for the particular month
In case of failure to submit the declaration within the stipulated period, the insurers consider that the full sum insured under the policy is declared.
Another important factor that the declaration policy states is that, when there is a refund of premium based on adjustments like declarations or cancellations, the refund will not exceed 50% of the total premium.
The basis for valuation of the stock or the inventory stored in the warehouse or the factory value close to the market price.
The declaration policy states that in case of loss, the insured will recover a specific amount. But if it is found that there is a difference in the last declared amount and the amount that had to be declared, then the insurance company will pay only the proportionate amount to the insured after deducting the difference between the two amounts.
The declaration policy for factory and warehouse insurance cannot be issued when:
- The duration of the insurance is very short
- When the stocks are present at railway sidings
- When the stocks are undergoing process
Vijay, a 40-year-old individual, was the owner of a factory processing upholstery for furniture. He was in this business for many years. As the majority of the processing work revolved around large piles of cloth, he had to protect his stock against any perils like fire or flood. So, considering the dangers to the stock and inventory, Vijay purchased a factory and warehouse insurance policy. Thus, he secured his business against perils such as:
- Pollutant contamination
- Aircraft damage
As a part of this factory insurance, Vijay had to submit a declaration to the insurance company on a monthly basis which included the average value of stock present in the factory during a particular month. Vijay was prudent in his duty and never missed the deadline. Hence, in case of loss due to any peril Vijay will be liable to the get the amount of sum insured successfully.
In the year 2010, Vijay was running business worth rupees 2 crores. Due to a severe fire, the entire factory got affected and led to a production loss of 50 lakhs. In this scenario, the factory insurance procured by Vijay came to his rescue. The insurers investigated the matter and found that:
- The cause of the fire was a short-circuit caused in one of the electronic boards.
- Vijay had properly stated the average value of the stock at risk in the declaration policy.
Since Vijay had adhered to all the necessary actions, the insurance company successfully passed his claim. The factory insurance policy obtained by Vijay helped him cover the loss.
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