Business insurance · Standard policies

₹5 crore, and a 15% line: which fire policy your business is really on

AdvisorGrow team · 25 August 2026 · 7 min read

Ask a factory owner what his fire policy is called and the answer is "fire insurance." Ask which of the two standard covers it is, and there is usually silence — not carelessness, just that nobody ever mentioned there were two.

Since 1 April 2021 the whole of business fire cover in India has run on a framework most owners have never had explained to them. It settles two things that matter: which policy you are on, and how much room you have before a claim starts getting cut.

Three covers, split at two numbers

IRDAI replaced the old Standard Fire and Special Perils policy for business risks with three prescribed products. Which one applies is decided by the total value at risk at any one location.

Read that threshold carefully, because it is the part most often misread. It is not turnover, and it is not the size of the company. It is building, plant and machinery, furniture and fittings, and stock, added up at one address. A trader with three godowns is assessed godown by godown — so a business well under ₹50 crore overall can still have a single location that decides which policy it gets.

What "standard" actually means

It means the contract is fixed. Both policies run from Clause A to Clause K in the same order, with the same words, and no insurer is permitted to alter any part of the wording. Underinsurance is Clause F in every copy issued by every company.

Three things are not fixed. Premium is priced freely by each insurer. Add-ons are filed individually and differ. And since 2022 insurers may also sell tailor-made variants — you will see names like "Bharat Flexi Sookshma Udyam Suraksha" — which are not the standard wording and have to be read on their own terms.

What that means when you are being sold one. On the standard versions, comparing insurers on policy wording is pointless, because the wording is identical down to the comma. Comparing on premium, on service and on claims record is not. If a proposal is being pitched to you on the strength of its coverage, ask whether it is the standard product or a variant — because if it is standard, the coverage is not what makes it different.

The 15% cushion, and the cliff behind it

Both Bharat Sookshma Udyam Suraksha and Bharat Laghu Udyam Suraksha waive underinsurance up to 15%. Declare ₹5 crore, let a surveyor find the true figure was ₹5.5 crore — about 9% short — and the claim is still paid in full. That is a real protection, and it exists because valuing stock and machinery to the rupee is genuinely hard.

Past 15%, the waiver does not shrink. It disappears. The reduction then applies to the full extent of the shortfall, not merely to the part beyond 15%.

That shape is the thing to remember. It is not a penalty that grows gently as you drift. It is a step you are either behind or over — and one percentage point of valuation separates a claim paid in full from ₹16 lakh coming out of your own pocket.

The 15% is also measured item by item, not across the policy as a whole. Being comfortably covered on the building does not rescue an under-declared stock figure.

The trap sets itself

Almost nobody re-declares values at renewal. The sum insured is fixed once, at the start, and then carried forward year after year while the schedule prints the same number and the premium gets paid.

Meanwhile the business does what businesses do. Stock levels rise, a second machine arrives, construction costs go up. Five years of ordinary growth is enough to move a unit from safely inside the cushion to well past it — without a single decision ever being taken about the policy.

Which means the owner most exposed is not the one who cut corners. It is the one who insured honestly and has done well since.

One thing these policies are not

They are standardised. They are not government-backed.

IRDAI prescribes the wording, and that is the whole of its role here. The risk sits with whichever company issued the policy, and a claim is paid out of that company's balance sheet. The Bharat name, and the fact that several of the large insurers selling these are government-owned, cause real confusion on this point — but state ownership of a company is not a sovereign guarantee on a contract.

Three things to check on your own schedule

Which policy is it? The name is printed at the top of the schedule. If it says Standard Fire and Special Perils, you are on the older wording and there is no 15% cushion at all — the reduction applies from the first rupee.

What is the sum insured, item by item? Building, plant and machinery, furniture and fittings, stock — four separate figures, not one total. That is how a claim will be assessed.

What would it cost to rebuild and restock today? Not what you paid. Not the book value after depreciation. What it would cost, at today's prices, to put everything back as it was.

The five-minute version. Divide the sum insured by today's replacement cost, item by item. Below 85% and that item is past the line — and you now know it before a claim rather than after one. Between 85% and 95% you are inside the cushion, but close enough that one good year will push you over it.

General insurance education, not advice on any specific policy. Figures are illustrative except where attributed to published IRDAI standard product wordings. Terms, exclusions, add-ons and the excess applicable to each claim vary between insurers and products — read your own policy wording, or ask a licensed advisor to read it with you.

Where does your 15% line sit?

The free Business Risk Check takes about three minutes — replacement cost, how far your sum insured falls short of it, and what a claim would actually pay.

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