Consequential Loss Insurance or Loss of Profit insurance policy is often treated as an extension of Fire and Special Perils Insurance policy.
This policy is designed to protect the earning capacity of a business following the damages caused by fire and/or allied perils to the properties of an organization. It also enables the business to achieve the level of net profit which would have been earned but for the fire.
When fire occurs, the material damage of the loss is not only what the Insured suffers; the loss of income or the earning capacity of the company, added operating costs and employee payroll is also at stake. For instance, an agricultural firm will be unable to continue production in the event of a fire damage which will definitely result in loss of income. This may also affect payment of wages to employees.
A Consequential Loss policy was designed to cover such risk.