January 12, 2023

Factory Insurance | Coverage, Exclusions, and Benefits

Factory Insurance | Coverage, Exclusions, and Benefits

A Factory Insurance policy protects factories, manufacturing units, plants, workshops, and mills from any property damage that may occur due to risks like fire, explosions, riots, floods, storms, and theft.

Factory Insurance acts like a safety cushion, offering the insured business financial reimbursement for any material damage to factory property during the policy period. This includes assets like plant and machinery, electrical and mechanical equipment, tools, stock of goods, and much more.

Factories and manufacturing plants form the backbone of the Indian economy, accounting for 78% of total industrial output, and making major contributions to the country’s GDP.

Manufacturers invest years of capital and hard work into these units. And any unexpected mishap such as a short circuit, a burst pipe, an electrical explosion, or a massive storm can prove disastrous for their survival. But with Factory Insurance, much of the danger gets absorbed by the insurance company, leaving the factory up and running in no time.

Factory Insurance provides extensive coverage to almost all assets that are employed in a manufacturing setup. This includes-

  • All kinds of raw materials
  • Stock of goods (whether finished or work-in-process)
  • Plant and machinery
  • Furniture and fixtures
  • Factory building and outer structure
  • Any mechanical or electrical equipment in use at the factory
  • Electronics equipment like air conditioners, fans, wiring, computers, etc.
  • Important documents

These assets can be very expensive but are highly essential to the manufacturing process. That’s why Factory Insurance seeks to provide quick financial reimbursement in the event of any damage or destruction to these resources. This includes-

  • Fire, explosion, or lightning
  • Natural disasters like floods, earthquakes, cyclones, and storms
  • Riots, strikes, or intentional damage by a third party
  • Burglary or theft
  • Damage to property due to an impact or collision
  • Damage due to water leakage or bursting of pipes
  • Damage due to an implosion or explosion of a boiler or apparatus
  • Damage due to electrical arcing, short circuit, or other related risks
  • Damage due to terrorist activities or missile testing operations in the vicinity of the factory

This policy also covers damage to important documents or loss of cash up to ₹50,000.

A Factory Insurance policy also comes with a set of add-on covers which provide additional risk coverage to the policyholder on payment of extra premium. Although these extensions differ from insurer to insurer, some of the most common ones are-

  • Burglary and Theft coverage- this will cover any loss of goods, machinery, tools, etc. on account of a robbery, theft, or snatching.
  • Money Insurance- also known as Cash Insurance, this add-on policy can help reimburse the factory owners for any loss of cash or cash equivalents during the ordinary course of business
  • Machinery Breakdown Insurance- some insurers also offer a separate Machinery Breakdown Insurance policy that helps cover cases of mechanical or electrical breakdown of factory machinery during the course of business

Factory Insurance provides a variety of benefits to manufacturing concerns when it comes to securing their property against unexpected loss or destruction. But in certain situations, this policy’s coverage can fall short. Broadly speaking, Factory Insurance comes with the following exclusions:

  • Normal wear and tear of machinery, tools, or other property
  • Damage caused due to the negligence or wilful misconduct of the factory owner or any employee
  • Any damage caused due to a war or a pandemic
  • Losses caused by radiation or other nuclear risks
  • Any loss of goods in cold storage due to changes in temperature
  • Any loss or damage caused by pollution, seepage, or contamination

A Factory Insurance policy helps factories and manufacturing units in a number of ways, offering them a wealth of benefits, such as:

  • Complete asset protection

Factories employ a large number of equipment and machinery that are often expensive to procure, install, and maintain. Factory Insurance ensures that any damage to these essential assets due to a short circuit, chemical explosion, lightning strike, or any other mishap can be completely recovered.

  • Coverage against a broad spectrum of risks

Factory Insurance offers financial protection against a plethora of risks, such as fire, explosion, natural calamities like storms or earthquakes, man-made disasters like riots, robbery or intentional harm, and much more. This policy provides complete protection to factory property from any accidental loss or damage.

  • Multiple location coverage

A single Factory Insurance policy can cover stocks located at more than one business location. Under the floater coverage option, factory owners can also insure frequent fluctuations in the value of stocks, thus eliminating the possibility of underinsurance.

The cost or yearly premium of Factory Insurance is different for every business, depending on the following factors -

  • The type of factory or nature of business
  • Location of the factory- some risk-prone areas warrant a much higher premium than others
  • Size of the business- large factories need a higher Sum Insured which raises the premium amount
  • Claims history- insurance companies factor in a business’s claims history while assessing its risk profile. If the business is deemed risk-prone, the premium amount will likely increase
  • Any add-on covers or extensions that are opted for will raise the premium

Whether it is a batch of finished goods, a stack of important documents, or some essential plant and machinery- Factory Insurance can protect every asset that is integral to the continued survival and successful operation of a manufacturing unit. In recent years, with the government-sanctioned standardisation of this policy, it has become incredibly simple and easy for small business owners to secure their facility.

Further Reading

Warehouse Insurance
Stock Insurance

Opinions, conclusions and statements of intent expressed in this article are that of the author and Verak does not accept liability for the views expressed unless confirmed by an authorized representative of the Company independently of this communication.