By Mahendra Bhansali, CA · June 2026 · 7 min read
Every year, we review fire insurance policies for factory owners across Ahmedabad's industrial belts who assume they're fully covered — until we walk through the actual numbers with them. Here's the checklist we use internally, shared so you can run through it yourself before your next renewal.
This is the single biggest gap we find. Factories expand, add machinery, and build up stock — but the fire policy often still reflects sum insured figures from three or four renewals ago. If your declared value is lower than the actual value at risk, most policies apply a proportionate reduction (the "average clause") to any claim, meaning you could recover significantly less than your real loss even on a partial claim.
Make sure your building and machinery are insured on a reinstatement value basis, not market value. Market value factors in depreciation — meaning an older machine might be "worth" very little on paper, but could still cost the full replacement price to actually replace. Reinstatement value cover pays what it actually costs to rebuild or replace, which is what you need after a real fire.
A standard fire policy covers physical damage to your building, machinery, and stock. It does not automatically cover the loss of profit while you're rebuilding or waiting for new machinery. If a fire shuts down your production line for two months, that lost revenue isn't covered unless you specifically have a Business Interruption (or "loss of profit") add-on. For many factories, this add-on ends up mattering more than the property damage itself.
Fire policies often carry conditions — functioning fire extinguishers, a certain number of hydrants, electrical safety audits completed within a set period. These are usually buried in the policy schedule and easy to overlook. If a claim happens and you're found non-compliant with a warranty, the insurer has grounds to reduce or reject the claim entirely, regardless of how the fire actually started.
Not all "fire insurance" policies are the same. Some cover only fire, lightning, and explosion. Others (a Standard Fire and Special Perils policy) add storm, flood, impact damage, and more. Given Gujarat's monsoon flooding risk in low-lying industrial areas, confirm your policy actually includes flood and storm — some older or basic policies don't.
If you're on a floating/declaration-based stock policy, your monthly declarations need to be reasonably accurate. Under-declaring to save premium is one of the most common — and most costly — mistakes we see, since it directly reduces what you can claim if a fire hits during a high-stock period.
Fire insurance is one of those policies people buy once and forget about. But factories change every year — new machinery, expanded storage, higher stock levels — and the policy needs to keep pace. A 20-minute review once a year catches almost all of the gaps above.
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