The loss of profit insurance policy differs from other insurance policies in respect of concept of Indemnity period. In other policies, the period of insurance (From….to….date ) & period of indemnity indicate the same thing. Let us try to understand the difference for a LOP policy.
Period of indemnity in a LOP policy is defined as a period based on an estimate of the maximum time, which would be required to resume normal production after a serious accident. ( Hence, also called Maximum Indemnity Period). It is the obligation & decision of the Insured to choose an indemnity period, as defined above.
Deciding on a shorter period than necessary would mean a lower compensation in event of a claim. Selecting a period longer than required would mean wasteful premium outgo. Using his experience of running the business, the Insured is to undertake this exercise of scenario building for different contingencies that may arise & chose the best balance between too short & too long.
“Time and tide wait for none”- is an old adage. Let's try to understand its applicability in case of an insured who needs to re-start his business after a loss. The following factors & their time sensitivity need to be considered in any action plan to resume normalcy. These in turn lead to best estimation of optimum Indemnity Period to be selected.