What is factory and warehouse insurance? (A Simple Guide)

As a factory/warehouse owner, the integrity and safety of your factory or warehouse is integral to the survival of your business. That being said, there are a many perils that a factory owner has to face. From natural fires, electric fires, thunderstorms, thefts, public liabilities, breakdown of machines, terrorism and more such dangerous events.

How can a factory owner counter these dangerous perils and ensure the smooth functioning of their business? The answer is factory and warehouse insurance.
This article will discuss some of the most pertinent points concerning factory insurance. They are:-

• Meaning of factory and warehouse insurance
• Importance
• Types
• Coverage and exclusions
• FAQs

Meaning of factory and warehouse insurance

A factory and warehouse insurance is simply an insurance policy that a factory owner purchases in order to safeguard his factory against various unfavorable conditions (such as fires, thefts, acts of terror, electric fires and more) that would result in monetary loss for the factory owner.

Let us understand this with the help of a simple example. Let us say Mr. Dixit owns a clothing factory in Mumbai and has purchased a factory insurance policy from HDFC ERGO. A few months later, there is an electric fire in his factory that destroys all the inventory and causes severe damages to his machinery.

As Mr. Dixit bought factory insurance, he was in a position to recover all his losses from the insurance company and ensure the continuity of his business.
Had he not bought a factory insurance policy, he would have to declare bankruptcy. That is the importance of factory insurance.

Importance

Let us now elucidate some of the most important factors of factory and warehouse insurance:

Coverage: The primary importance of any insurance policy is the coverage that it provides. Factory insurance is no different. The policyholder pays a premium to the insurance company, and in exchange the insurance company covers a plethora of risks faced by the policyholder.

Peace of mind: A factory insurance policy provides a great deal of peace of mind to the business owner. The business owner knows that the insurance company has his back in the event of an unfortunate situation. This peace of mind can have a cascading effect on the performance of a business and its decision making abilities.

Protection against public liabilities: A business is liable against any damages it causes to society. A factory insurance policy covers these risks. For instance, there could be the maiming of a factory worker while working at a factory, the insurance company would provide a coverage against such risks and indemnify the factory owner.

Continuity of business: When it comes to business, continuity is paramount. A single major shock like fire to the factory can send the entire business in a tailspin, and the business may not have the ability to recover from such a catastrophic event. A factory insurance policy cannot stop such an event from happening, but it can surely compensate the policyholder against the loss caused. The policyholder can then use the funds dispersed by the insurance company to repair his factory, thus resulting in his business’s continuity.

Highly customizable: Insurance companies provide various custom factory insurance plans and policies that cater to the specific needs of a factory owner. This customizability provides a great deal of flexibility to the policyholder.

Widely available: This kind of policy is widely available in the insurance market, and every business owner should make it a point to opt for it.

Types

Floater policy: This kind of policy covers various factories across various locations. A policyholder can take a single floater policy that provides coverage to all of his factories and warehouses.

Comprehensive policy: This policy, as the name suggests, provides comprehensive protection against all risks associated with running and maintaining a factory.

Replacement and reinstatement policy: This policy ensures that the factory owner is compensated for the costs associated with the replacement and reinstatement of a particular asset.

Specific policy: Under this policy, the coverage will only extend up to the specific amount mentioned within the policy bond. Any losses occurring over and above the specific amount will not be compensated for.

Valued policy: This policy reimburses the business owner keeping in mind the market value of the damaged goods.

Coverage and exclusions

Let us now list some of the general coverages provided under a factory insurance policy.

Coverages:

• Natural calamities like storms, earthquakes, lightning, floods, etc.
• Theft and burglary
• Terrorism
• Electric fires
• Breakdown of machines
• Public liabilities
• Fidelity coverage
• Breakdown of electronics

Exclusions:

• Intentional damages caused to the insured property
• Damages caused due to war
• Regular wear and tear
• Damage caused due to radiation
• Damages caused due to illegal activities