Most business claims are not rejected. They are reduced. The commonest reason is underinsurance, and it is decided at the moment you buy, not at the moment you claim. If your sum insured is half of what the asset is worth, the insurer can settle half the loss even when the loss is small.
That is the average clause, and it sits in every standard fire policy. This page is about the claims side. If you are still choosing cover, start with our business insurance buying guide.
Which policy pays what, and how is the amount fixed?
| Policy | What it insures | How the sum insured is set | Why a claim gets cut |
|---|---|---|---|
| Bharat Sookshma Udyam Suraksha | Building, plant, stock against fire and allied perils | Reinstatement value; risk up to ₹5 crore per location | Sum insured below reinstatement cost |
| Bharat Laghu Udyam Suraksha | Same, for larger risks | Risk above ₹5 crore and up to ₹50 crore | Stock valued at average, not peak |
| Public liability | Third-party injury and property damage | Limit per event and in aggregate | Aggregate limit already used by an earlier claim |
| Professional indemnity | Financial loss from your advice or service | Limit of indemnity, usually claims-made | Claim notified after the policy period ended |
| Marine cargo | Goods in transit | Invoice value plus freight, often plus 10% | No survey, or packing excluded by the wording |
| Employees compensation | Death or injury of a worker | Wage roll declared at inception | Wage roll understated at renewal |
| Group health | Staff hospitalisation | Cover per member, with sub-limits | Room rent sub-limit scaling the whole bill |
Read as of 6 September 2026. The two Bharat products and their value-at-risk bands are set by IRDAI’s guidelines on standard fire products.
How does underinsurance actually cut my claim?
By proportion. The insurer compares your sum insured with the true value at risk on the day of loss. If the sum insured is 60% of that value, it pays 60% of the loss. The clause applies to a partial loss, which is what most fires are.
The arithmetic is brutal on a small claim. A shed worth ₹1,00,00,000 insured for ₹60,00,000 suffers a ₹10,00,000 fire. You do not get ₹10,00,000, because you were within the sum insured. You get ₹6,00,000. The saving on premium was a fraction of that.
Stock is where firms trip. Stock rises before a festival season and falls after. Insure the annual average and you are underinsured exactly when a fire would hurt most. Declaration-based stock cover exists for this. Ask for it.
What do insurers actually check on a claim?
Three things, in order. Whether the peril is covered by the wording. Whether the property and occupancy match what was declared. And whether the loss can be evidenced.
Occupancy mismatch is a real killer. If the policy says godown for textiles and you were storing plastics, the insurer can decline. Tell your insurer when the use of the premises changes. It is a five-minute email that decides a seven-figure outcome.
Evidence means the boring documents. Purchase invoices, a stock register, the fire brigade report, the FIR where relevant, and photographs before anything is cleared. Clearing debris before the surveyor arrives destroys the claim you are about to make.
What is different about professional indemnity?
It is usually written on a claims-made basis. Cover responds to a claim made against you during the policy period, not to the work you did during it. Advice given in 2024 and challenged in 2027 is covered only if you still hold a live policy in 2027.
That has a consequence people miss. If you stop the policy when you retire or wind up the practice, the cover for your past work stops too. Run-off cover is bought for that, and it costs money nobody budgets for.
The retroactive date is the other trap. Cover applies only to work done after that date. Changing insurer can reset it, which silently deletes years of your own history. Ask the new insurer to match the old retroactive date in writing.
How do I run a claim so it pays?
- Notify the insurer immediately, in writing, even before you know the amount.
- Do not disturb the site until the surveyor attends.
- Photograph everything, including undamaged stock, with a timestamp.
- Give the surveyor the stock register and purchase invoices, not a summary.
- Get the survey report reference number and follow it up in writing.
- If the settlement is short, ask for the calculation, including any average clause working.
If it stalls, escalate. Insurers must run a grievance process, and IRDAI’s rules and grievance route is covered in our page on IRDAI rules and complaints. The common claim rejection reasons page lists what goes wrong earlier.
Frequently asked questions
What is the average clause in a fire policy?
It is the condition that reduces a claim in proportion to underinsurance. If the sum insured is 60% of the true value at risk on the day of the loss, the insurer settles 60% of an otherwise valid claim. It applies to partial losses, which is most of them.
Should stock be insured at cost or selling price?
At cost, under a standard fire policy. Selling price includes profit you have not earned yet, and the policy indemnifies loss, not profit. The lost profit is covered by a separate business interruption extension.
Is professional indemnity worth buying for a two-person consultancy?
If a client could sue you for a loss caused by your work, yes. The exposure does not scale with your headcount, it scales with your client’s balance sheet. Buy it on a claims-made basis and keep the retroactive date intact when you switch insurers.
Does a group health policy cover the owner’s family?
Only if they are on the policy as members and the insurer accepted them. Adding family who are not employees is a common request and it has tax consequences, because the premium is then not clearly a business expense.
Sources
- Guidelines for Standard Products for Fire and Allied Perils, IRDAI — irdai.gov.in.
- Bharat Sookshma Udyam Suraksha and Bharat Laghu Udyam Suraksha standard policy wordings filed with IRDAI — policyholder.gov.in.
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