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FAQ - Engineering

  1. What is the purpose of taking the Machinery Break down Policy?

Machinery and Equipment used in various industries are exposed to risks of unforeseen and sudden mechanical or electrical breakdown resulting in loss or damage. Such losses may be repairable or sometimes need replacement. Machinery Breakdown is designed to provide coverage for machinery against any unforeseen and sudden physical loss or damage, necessitating its repair or replacement due to causes such as :- vibration, mal-adjustment, mal-alignment,- defective lubrication, abnormal stress, centrifugal force,-explosion/implosion, impact, collision, falling,- excessive electrical pressure, failure of insulation, short circuit arcing- failure of protective devices, entry of foreign material,- lack of skill or negligence 

  1. Who all can take Machinery Insurance Policy ?

 Machinery Insurance is an essential insurance for any client who relies upon machines for successful running of their business. Manufacturing, Industrial, Engineering, printing companies etc are the major buyers of this insurance. 

  1. What all machines can be covered under the policy?

 Any machine successfully tested and commissioned for normal production/use can be covered under the Machinery Insurance Policy. All machines like Turbines, Compressors, Air conditioners, lathes, presses, pumps, Alternators & Generators, Switch Gears & Transformers can be covered.  

  1. Can I prefer to insure only a few critical machines & avoid taking insurance for other auxillary machines?

 Yes. Selection of critical equipment is allowed but the machine needs to be insured as a whole. 

  1. Should I take both Fire Insurance and Machinery Insurance for my plant & machinery or Machinery insurance alone will suffice?

Yes. For a comprehensive cover for your plant & machinery, both Fire & Machinery insurance must be availed. Under machinery insurance policy, fire is exclusion & under fire insurance electrical/mechanical breakdown is exclusion. Alternatively, you may opt for an Industrial All risk policy which is a package policy covering Fire & allied perils, Breakdown & Loss of Profit. 

  1. For what value of machine the insurance should be purchased?

 It is a requirement of this insurance that the sum insured be equal to the cost of replacement of the machines by new machines of the same kind and same capacity, which shall mean its replacement, or reinstatement cost, including freight, custom duties, if any, and erection costs. 

  1. Are there any additional covers available in the Machinery Insurance policy?

 Yes. Apart from the standard coverages, additional covers are also available which you can select as per your requirements. The add-on covers available are as under : - Insured's own surrounding property cover- Third Party Liability- Express freight overtime & holiday wages (Excluding Air freight)- Air freight- Additional Custom Duty- Escalation 

  1. Can I change the Value of Insurance during the currency of the policy?

Yes. There is a provision in Machinery Insurance policy to change the value of machine (Sum Insured) during the currency of policy. You may contact the policy issuing office & make a request.

  1. Am I eligible for a refund if I cancel the policy during the currency of the policy?

 Yes. There is a provision for refund of premium if the policy is cancelled during the currency of the policy. 

  1. Will my Machinery insurance cover damages to machines while they are undergoing any cleaning or overhauling?

 Yes. This Policy shall apply to the insured items whether they are at work or at rest, or being dismantled for the purpose of cleaning or overhauling, or in the course of the aforesaid operations themselves, or when being shifted within the premises, or during subsequent re-erection, but in any case only after successful commissioning. 

  1. Should I inform the company if my old machine is replaced by a new identical machine of same type & model?

 Yes. Machinery insurance is issued on individual machine basis incorporating the Serial No. of the machines & if the machines are replaced, the company must be informed immediately. 

  1. What will be the basis of settlement of claim under this policy?

 In the event of loss or damage which can be repaired, the company will indemnify the expenses necessary to restore the damage machinery to its condition immediately before the occurrence of the loss. This will include cost involved in dismantling, freight and assembly charges.When the item is a total loss, the liability of the company will be limited to actual value of the damaged items immediately before the occurrence of the loss. Value of Salvage, if any, will be deducted from the loss settlement.

I’m having a RS.25 crore firm, can I take IAR policy with National Insurance Company Ltd?

No. IAR policy can be issued only for industries having Sum Insured above Rs. 50 crores.

What are the perils listed in IAR policy

Perils are not listed in IAR policy. Only excluded properties and excluded causes are listed in the policy. Any accidental damage which is not listed in exclusion is covered.

Do we need a separate burglary policy in addition to our IAR policy?

No. Burglary is not excluded i.e covered in IAR policy.

What is the advantage of taking IAR policy instead of separate SFSP,MBD and FLOP policies?

It is a wider cover. Perils like accidental damage and burglary are covered in IAR policy. Rate for Machinery breakdown is low and depreciation is not applicable in IAR policy.

Can I cover livestock along with other assets of IAR policy?

The livestock are not covered under IAR policy

Is depreciation applicable for breakdown claim like MBD or EEI policy?

IAR policy is a Reinstatement value policy. Depreciation is not applicable for breakdown claims like MBD or EEI policy.

Our machinery is accidentally damaged while shifting to our workshop within premises for overhauling. Is it covered?

Yes. Damage during transit within the premises is covered in IAR policy.

Are garden inside the industrial premises covered under the policy?

No. The garden inside the industrial premises is not covered under the IAR policy.

Is MLOP section compulsory under IAR policy?

No. Only Fire loss of profit is a compulsory section. Machinery LOP is an optional cover.

Is FLOP compulsory?

Yes. FLOP is compulsory section.

Can we select specified machinery for material damage in IAR like MBD policy?

Unlike MBD policy the insured could not select the specific machines in IAR. In IAR policy all the machines should be covered.

Is rate for machinery breakdown high under IAR policy as there is no depreciation deducted in the event of breakdown claim?

No. The rate is low compared to MBD policy.

Can refund be availed for value of stock similar to declaration policies?

The facility of declaration of stock is not be available in IAR policy. There is no refund provision for value of stock.

What is indemnity period? How it is to be fixed?

Indemnity period is the maximum business interruption period for which claim is payable. It is to be fixed by Insured considering the nature of the manufacturing unit and time that would be required for repair and to start production again in the event of a claim.

Whether acts of fraud or dishonesty by my employees covered under IAR?

Acts of fraud and dishonesty are not covered under IAR policy. Separate Fidelity guarantee policy is to be taken.

Is damage to motor vehicles resulting from collision covered?

Vehicles licensed for road use is excluded from coverage in IAR policy.

Should I take IAR with RIV clause?

RIV clause is not specifically required for IAR policy as claim settlement is on Reinstatement basis only in IAR policy.

Government has ordered for destruction of property covered in IAR. Will it be covered?

No. It is a general exclusion.

ABC petroleum Industries is asking for an IAR policy. Is it eligible to issue IAR policy?

 Yes. Now petroleum industries can also take IAR policy.

I have insured our company’s assets for 90% value only? Will there be under insurance in IAR policy claim?

In IAR policy under insurance is not applicable if Sum insured is not less than 85% of value at Risk.

  1. Who can take the policy?

The policy can be taken by any individual or organisation as Principal or Contractor of a project. It can be taken in joint names also. 

  1. Can the policy be availed for simple projects like an individual machines during Erection?

Yes.  

  1. Does it cover all risks as termed as All Risks policy?

No. The policy has few exclusions like War and nuclear perils, wear and tear, gradual deterioration, Damage due to faulty design, Consequential loss, etc. 

  1. What should be the policy period?

The policy period should be identical with project period i.e from commencement of work or arrival of material at project site and upto testing and commissioning. 

  1. How to arrive at Sum insured?

The Sum Insured under EAR Policy should represent the completely erected value of the project to be installed including freight, customs duties and erection cost. This should represent the current replacement value of the items when erected.  

  1. Can policy be extended if project is not completed within scheduled period?

Yes. It can be extended with payment of additional premium while extending the policy. 

  1. Can policy be taken after commencement of project work?

Yes. However, premium shall be charged based on actual commencement date. The proposal would be accepted after inspection to ascertain the status of project. It is advisable to avail policy on or before commencement of work. 

  1. Is instalment facility available for premium payment?

Yes. Instalment facility is available if project duration is more than 12 months.,

  1. Can refund be availed if actual project is less than estimated project cost?

Yes. Refund can be made on the basis of actual values to be declared by the insured in respect of freight and handling charges, customs dues and erection cost. Any increase or decrease in the Prime cost of materials shall not be the subject matter of premium adjustment. 

  1. Can refund be availed for early completion of project?

Yes. The period of insurance is 18 months and above, the period for which refund claimed is 3 months and above and claims experience under the policy being less than 60%.  

  1. What details are to be provided for availing the policy?

Duly filled proposal form providing details of nature of project, sum insured, project period, location, Principal, contractors, financial institutions and add on covers required is to be submitted along with copy of contract, if available.  

  1. Does the policy cover financial loss due to delay in completion of project?

No. The policy does not covers any consequential loss like loss of revenue due to delay in start-up or fines and penalties. 

  1. How can the financial loss due to delay in completion as a result of insured peril be taken care?

The loss of expected revenue due to delay in start-up caused by insured perils during erection phase can be covered by a separate policy called Advance loss of profit insurance.  

  1. Is there any minimum limit of Sum insured?

There is no minimum limit for Sum insured. 

  1. Is there any minimum period for policy?

There is no minimum time period for policy. 

  1. Whether property lying in open at project site covered?

Yes. Construction/erection material or machinery forming part of project is covered. However, Insured is required to take due care in safeguarding the property. 

  1. Whether policy can be taken in joint name of Principal and contractors?

Yes. Policy can be taken in the name of principal/Contractor/sub-contractor or in joint name of parties having insurable interest including financiers. 

  1. Is testing covered under EAR policy?

Yes. One month Testing is inbuilt cover in EAR policy and it can be enhanced by paying additional premium. 

  1. How to take care impact of inflation during long project periods?

The policy can be taken with Escalation provision at additional premium. 

  1. Will the property be covered after handing over to principal or commissioning if policy period is effective?

No. Company’s liability expires after testing for portion of the insured contract works taken over or put into service by the Principal prior to the expiry date.  

  1. What are AOG perils?

AOG refers to Act of God perils and includes Storm, tempest, Flood and inundation, subsidence, rockslide, Landslide, Earthquake, tsunami and other natural calamities which are beyond the control of humans.

  1. What is the purpose of taking the CPM Policy?

Contractor’s Plant and Machinery like excavators, rollers, dumpers, earth moving equipments, cranes, drilling machines etc utilized in the construction or Erection site are always exposed to numerous risks and hazards inluding natural calamities. This Insurance provides financial protection against damage to Contractor’s plant machinery equipments whether they are being used or are at work-site or at rest or during their maintenance operations. It also has an option to cover third party claims in respect of property damage or bodily injury arising in connection with the execution of a various construction projects. The major perils covered are as under : 

    1. Fire, theft, burglary,
    2. RSMD (Riot, Strike, Malicious Damage)
    3. Terrorism
    4. Earthquake,
    5. Storm, Tempest, Cyclone, Flood, Inundation
    6. Accidental external damage while at work or rest at site due to faulty handling, impact, collapse, dropping

 

  1. Who all can take CPM Insurance Policy?

 CPM policy is mainly designed to protect the interest of civil contractors owning Contractor's Plant & Machinery Policy so as to ensure that their equipments are well covered against the damage or destruction related to various civil engineering projects.  

  1. What all equipments can be covered under the policy?

 Any contractor’s plant & machinery equipment like excavators, rollers, dumpers, earth moving equipments, cranes, drilling machines etc which are utilized in the construction or Erection site can be covered under this policy. 

  1. For what value of machine/equipment the insurance should be purchased?

 It is a requirement of this insurance that the sum insured be equal to the cost of replacement of the equipment by new equipment of the same kind and same capacity, which shall mean its replacement, or reinstatement cost, including freight, custom duties, if any, and erection costs. 

  1. Are there any additional covers available in the CPM Insurance policy?

 Yes. Apart from the standard coverages, additional covers are also available as under : - Insured's own surrounding property cover - Third Party Liability - Express freight overtime & holiday wages (Excluding Air freight) - Air freight - Additional Custom Duty- Escalation 

  1. Can I change the Value of Insurance during the currency of the policy?

 Yes. There is a provision in CPM Insurance policy to change the value of machine (Sum Insured) during the currency of policy. You may contact the policy issuing office & make a request. 

  1. Am I eligible for a refund if I cancel the policy during the currency of the policy?

 Yes. There is a provision for refund of premium if the policy is cancelled during the currency of the policy.  

  1. Will my CPM insurance cover damages to machines while they are undergoing any cleaning or overhauling?

 Yes. This Policy shall apply to the insured items whether they are at work or at rest, or being dismantled for the purpose of cleaning or overhauling, or in the course of the aforesaid operations themselves, or when being shifted within the premises, or during subsequent re-erection, but in any case only after successful commissioning. 

  1. Should I inform the Company if my old machine/equipment is replaced by a new identical machine of same type & model?

 Yes. CPM is issued on individual machine basis incorporating the Serial No. of the machines & if the machines are replaced, the Company must be informed immediately. 

  1. Can I cover my equipments which are working at multiple locations?

 Yes. CPM Policy can be issued covering equipment on “Anywhere in India basis” with a loading to 10%. However, transit risks from site to site will be excluded.  

  1. Can I cover an equipment under this policy which is registered with RTO?

 Yes. In respect of Machinery/ equipments, which are registered with RTO, but engaged at the Project site, the Insured, has an option either to select the Moto or CPM Policy. 

  1. Is transit risk (from one site to another site) covered under this policy?

 No. Transit risk from one site to another site is excluded.

  1. Who can take the policy?

The policy can be taken by any individual or organization as Principal or Contractor of a Construction project. It can be taken in joint names also. 

  1. Can the policy be availed for simple projects like an individual house during construction?

Yes.  

  1. Does it cover all risks as termed as All Risks policy?

No. The policy has few exclusions like War and nuclear perils, wear and tear, gradual deterioration, Damage due to faulty design, Consequential loss, etc. 

  1. What should be the policy period?

The policy period should be identical with project period i.e from commencement of work or arrival of material at project site and upto completion and handing over to Principal. 

  1. How to arrive at Sum insured?

The Sum Insured under CAR Policy should represent the completely constructed value of the project to be installed including freight, customs duties and erection cost. This should represent the current replacement value of the items when constructed.  

  1. Can policy be extended if project is not completed within scheduled period?

Yes. It can be extended with payment of additional premium while extending the policy. 

  1. Can policy be taken after commencement of construction work?

Yes. However, premium shall be charged based on actual commencement date. The proposal would be accepted after inspection to ascertain the status of construction. It is advisable to avail policy on or before commencement of work. 

  1. Is instalment facility available for premium payment?

Yes. Instalment facility is available if project duration is more than 12 months.,

  1. Can refund be availed if actual project is less than estimated project cost?

Yes. Refund can be made on the basis of actual values to be declared by the insured in respect of freight and handling charges, customs dues and construction cost. Any increase or decrease in the Prime cost of materials shall not be the subject matter of premium adjustment. 

  1. Can refund be availed for early completion of project?

Yes. The period of insurance is 18 months and above, the period for which refund claimed is 3 months and above and claims experience under the policy being less than 60. 

  1. What details are to be provided for availing the policy?

Duly filled proposal form providing details of nature of project, sum insured, project period, location, Principal, contractors, financial institutions and add on covers required is to be submitted along with copy of contract, if available.  

  1. Does the policy cover financial loss due to delay in completion of project?

No. The policy does not cover any consequential loss like loss of revenue due to delay in start-up or fines and penalties. 

  1. How can the financial loss due to delay in completion as a result of insured peril be taken care?

The loss of expected revenue due to delay in start-up caused by insured perils during the construction phase can be covered by a separate policy called Advance loss of profit insurance.  

  1. Is there any minimum limit of Sum insured?

There is no minimum limit for Sum Insured. 

  1. Is there any minimum period for policy?

There is no minimum time period for policy. 

  1. Whether property lying in open at project site covered?

Yes. Construction material or machinery forming part of project is covered. However, Insured is required to take due care in safeguarding the property. 

  1. Whether policy can be taken in joint name of Principal and contractors?

Yes. Policy can be taken in the name of principal/Contractor/sub-contractor or in joint name of parties having insurable interest including financiers. 

  1. Is testing covered under CAR policy?

No. However, if testing is required, separate Erection all Risk policy can be taken for such equipment. 

  1. How to take care impact of inflation during long project periods?

The policy can be taken with Escalation provision at additional premium. 

  1. Will the property be covered after handing over to principal or commissioning if policy period is effective?

No. Company’s liability expires for portion of the insured contract works taken over or put into service by the Principal prior to the expiry date. 

  1. What are AOG perils?

AOG refers to Act of God perils and includes Storm, Tempest, Flood and inundation, subsidence, rockslide, Landslide, Earthquake, tsunami and other natural calamities which are beyond the control of humans.

  1. Who can take the policy?

The policy can be taken by any individual or organization who own the equipment 

  1. Can the policy be availed for a single computer?

Yes.  

  1. What should be the policy period?

This is an annual policy i.e for 12 months  

  1. How to arrive at Sum insured?

The Sum Insured under the EEI Policy should represent the New replacement value of the Equipment 

  1. Is instalment facility available for premium payment?

No. Instalment facility is not available as this is an annual policy. 

  1. What details are to be provided for availing the policy?

Duly filled proposal form providing details of equipment, sum insured, location and add on covers required is to be submitted.  

  1. Can Laptop be covered under EEI policy?

No. But it can be insured under separate Special contingency policy. 

  1. Can portable medical equipment be covered under EEI Policy?

Yes.


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