What is the difference between an IAR policy and assembling separate SFSP, MBD and LOP policies?

The Industrial All Risk (IAR) policy is an all-risk package with integrated machinery and business-interruption sections — comprehensive cover under one coordinated framework with consistent terms. Assembling separate named-perils policies creates the risk of coverage gaps between policies and inconsistent claim settlement when one event triggers several covers at once. For businesses above ₹100 crore combined sum insured, the IAR's coherence and breadth usually make it the better choice. For smaller businesses, assembling separate policies from the standardised IRDAI product range is entirely adequate.

Conceptual · Article 7.3.6

Commercial Property Insurance.

Q: Is commercial property insurance mandatory in India?

No national law universally mandates commercial property insurance for all businesses. But it is effectively required in several practical contexts: institutional lenders making loans against commercial property require the asset to be insured; certain regulatory frameworks (factory licensing, food safety, healthcare facility licensing) may require minimum cover; and commercial lease agreements frequently require tenants to carry specified covers. Large listed companies are also expected to disclose material insurance arrangements under SEBI's governance frameworks.

Q: Does machinery breakdown insurance cover lost production while the machine is being repaired?

No — not under the standard MBD policy. It covers the cost of repairing or replacing the damaged machine and its parts. The financial loss from production downtime — lost profit and increased working costs — is classified as consequential loss and is specifically excluded from the standard MBD policy. That consequential loss requires a separate Machinery Loss of Profits (MLOP) extension, available for additional premium alongside the MBD cover.

Why One Fire Policy Is Never Enough for a Business.

Published as on 22 July 2026

Commercial property insurance protects the physical assets of a business — the building, plant and machinery, stock, and electronic equipment — against fire, natural disaster, theft, equipment failure and the revenue lost while operations are down. Unlike home insurance, it is almost never a single policy in India. It is a coordinated programme of covers, each answering a different risk: the Standard Fire and Special Perils Policy (SFSP) as the foundation, then Machinery Breakdown, Electronic Equipment, Burglary and Business Interruption cover — escalating to the all-risk Industrial All Risk (IAR) policy for combined sums insured of ₹100 crore or more. A business carrying only fire insurance is significantly under-protected.

6+ Covers

A Programme, Not One Policy

₹100 cr+

IAR Policy Threshold

18% GST

Input Tax Credit Eligible

Sec 37(1)

Business Expense · Not 80C/80D

Executive Summary · Page 2

Executive Summary · 6 Findings

Commercial property insurance is not a product you buy — it is a programme you assemble. The single most expensive mistake a business owner makes is assuming the fire policy covers everything. It does not: it explicitly leaves out machinery breakdown, standalone theft, electrical damage to electronics, and the revenue lost during downtime. Each of those is a separate cover. The second-most expensive mistake is under-insuring — declaring last year's book value instead of today's replacement cost — because the average clause then cuts every claim proportionally.

Covers what commercial property insurance is and how it differs from fire insurance; the six core covers and when each applies; the all-risk versus named-perils distinction; the landlord-tenant division that leaves leasehold improvements uninsured; how to value multiple asset classes and avoid the average clause; the property types with distinct risk profiles; Section 37(1) deductibility and 18% GST input tax credit; a five-step framework for building a programme; and six questions Indian business owners ask.

Key Findings

A programme of linked covers, not one policy.

Commercial property insurance is the ecosystem of covers that protects business-owned assets. The Standard Fire and Special Perils Policy (SFSP) is the foundation — building, plant, machinery and stock against fire and eleven allied perils — but it explicitly excludes machinery breakdown, standalone burglary, electrical damage to electronics, and downtime revenue. Those gaps require separate, linked policies.

Six core covers, each for a distinct risk.

SFSP for fire and allied perils; Machinery Breakdown (MBD) for internal mechanical or electrical failure; Electronic Equipment Insurance (EEI) for servers, computers and diagnostic gear; Burglary for standalone theft; Business Interruption / Loss of Profits (LOP) for revenue lost during recovery; and the Industrial All Risk (IAR) policy for large industrial risks. The right combination depends on what a business owns and does.

All-risk beats named-perils above ₹100 crore.

The SFSP and the standardised small-business products are named-perils: they cover only events explicitly listed. The IAR policy — available for combined sums insured of ₹100 crore or more — operates on an all-risk basis: it covers everything except what is explicitly excluded, giving broader protection and fewer coverage disputes for complex facilities.

The landlord-tenant gap is where cover disappears.

The landlord insures the building shell; the tenant insures stock, equipment, electronics, liability — and leasehold improvements. A tenant who insures stock but not the ₹25–50 lakh of custom interior work will find, after a fire, that no policy covers it. The landlord's building policy excludes tenant improvements; the tenant's stock policy excludes fixed interiors. Only a specific declaration closes the gap. It is a contractual matter governed by the lease.

Under-insurance triggers the average clause.

Insure at current replacement cost, not depreciated book value. Insure machinery for ₹2 crore when it costs ₹3 crore to replace, and a ₹90 lakh partial-loss claim is paid at two-thirds — only ₹60 lakh, the rest your own uninsured loss. Building, plant, stock, electronics and leasehold improvements each need current valuation, reviewed annually as construction and equipment costs rise.

A business expense — and GST is recoverable.

All commercial property premiums are deductible as business expenses under Section 37(1), not personal deductions under 80C/80D. The 18% GST on the premium is claimable as Input Tax Credit by a GST-registered business, cutting the net cost. Note: the September 2025 GST exemption for individual life and health insurance does not extend to general insurance — commercial property stays at 18%.

At A Glance

Metric	Value	Detail
Nature	A programme	Multiple linked covers
Foundation	SFSP	Fire + 11 allied perils
Small-biz product	Up to ₹5 cr	Bharat Sookshma Udyam
Mid-biz product	₹5–50 cr	Bharat Laghu Udyam
IAR eligibility	₹100 cr+	All-risk, integrated
Valuation basis	Replacement cost	Not book value
Tax	Section 37(1)	Business expense; 18% GST ITC
Best advised by	IRDAI broker	Multi-insurer access

Exhibit 01: The Cover-to-Risk Map

Risk	Cover	SFSP alone?
Fire, flood, riot	SFSP	Yes
Internal machine failure	MBD	No
Electrical damage to IT	EEI	No
Standalone burglary	Burglary	No
Downtime revenue loss	LOP / BI	No

Illustrative. The SFSP is the foundation but four of five common exposures fall outside it — proof that one fire policy leaves a business significantly under-protected. Earthquake and terrorism are also excluded from the SFSP by default and must be added as endorsements.

The Opening · Page 3

The Opening

A factory burns, and the owner discovers the building was insured but the ₹3 crore CNC machine was not — because the fire policy never covered the short circuit that started inside it. A shop is burgled overnight, and the fire policy pays nothing, because standalone theft was never in it. A hotel closes for four months after a kitchen fire, and while the structure is rebuilt at the insurer's cost, the four months of lost room revenue are the owner's own loss. Each of these is the same error in a different disguise: treating commercial property insurance as one policy, when it is a programme of covers, each addressing a different category of risk.

"Fire insurance is the foundation of commercial property cover, not the whole building. It insures the walls against fire — but not the machine against its own short circuit, not the stock against the thief, and not the business against the silence that follows the smoke."
The Gaps Between the Policies

What the fire policy leaves out. The SFSP covers structure, plant, machinery and stock against fire and eleven allied perils — floods, storms, riots, subsidence. But it explicitly excludes machinery breakdown from internal failure, standalone burglary, electrical damage to electronic equipment, and the revenue lost during downtime. Those four gaps are not oversights; they are separate, priced risks with their own policies: MBD, Burglary, EEI, and Business Interruption.

The two ways businesses lose money. The first is the coverage gap — a risk that simply was not insured, like the leasehold improvements no policy declared. The second is under-insurance — declaring depreciated book value instead of today's replacement cost, so the average clause cuts every claim proportionally. Both are avoidable, and both are common.

The Honest Boundary: Commercial property insurance is NOT a single policy — a business carrying only fire cover is significantly exposed. It is NOT a personal 80C/80D deduction — it is a business expense under Section 37(1). It does NOT cover goods in transit, cyber losses, inventory shrinkage, or contractual liability beyond property damage. It IS the coordinated programme that protects the building, machinery, stock, electronics and revenue of a business — assembled cover by cover, valued at replacement cost, and reviewed every year.

Structure

Part I

What It Is & the Six Core Covers of the Programme

Part II

All-Risk vs Named Perils, the Landlord-Tenant Gap & Exclusions

Part III

Valuation, the Average Clause, Property Types & Tax

Part IV

The Verdict: Build a Programme, Not Buy a Policy

You Need This If

✓ You own a building, plant or stock

✓ You rely on machinery or IT assets

✓ Downtime would cost you revenue

✓ You occupy a leased commercial space

Common Mistakes

✕ Buying only fire cover

✕ Insuring at book, not replacement value

✕ Ignoring leasehold improvements

✕ Never reviewing the sum insured

Part I

What Commercial Property Insurance Is, and the Six Core Covers That Make Up the Programme

Why the SFSP is a foundation and not the whole structure; how Machinery Breakdown, Electronic Equipment, Burglary and Business Interruption cover fill the gaps the fire policy leaves; and where the standardised IRDAI products and the flagship Industrial All Risk policy fit by size of risk.

Part I · Page 4

The Six Core Covers

Cover	Protects Against
SFSP	Fire & 11 allied perils
MBD	Internal machine failure
EEI	Electrical damage to electronics
Burglary	Standalone theft, robbery
LOP / BI	Lost revenue in downtime
IAR	All-risk (₹100 cr+)

The SFSP covers structure, plant, machinery and stock against fire, floods, storms, riots and subsidence. Earthquake and terrorism are excluded by default and added as endorsements. MBD pays when a machine fails from an internal cause — short circuit, loose part, lack of lubrication — the very thing fire cover excludes. EEI handles electronic devices, whose failure modes differ from mechanical plant; data restoration is usually an optional add-on.

The Standardised IRDAI Products

Sized to the Business

For total property value up to ₹5 crore, the IRDAI-standardised Bharat Sookshma Udyam Suraksha policy does the SFSP's job. From ₹5 crore to ₹50 crore, the Bharat Laghu Udyam Suraksha policy applies. Above ₹100 crore combined sum insured, the flagship Industrial All Risk (IAR) policy takes over — an all-risk package with four sections: property damage, machinery breakdown, fire loss of profits and machinery loss of profits.

The Two Covers Owners Forget

Business Interruption (LOP)

The fire policy rebuilds the premises; it does not replace the income lost while you cannot operate. LOP pays the gross profit lost during the interruption plus the increased costs of minimising it — overtime, outsourcing. The catch: an LOP claim is valid only if a physical-loss claim is first admitted under the linked fire policy.

Machinery Loss of Profits (MLOP)

The standard MBD policy repairs or replaces the broken machine — but not the profit lost while it sits idle. That consequential loss is specifically excluded and requires a separate MLOP extension for additional premium. A single point of failure on a production line can cost far more in downtime than in repair.

Where Each Product Fits

Property Value	Product	Basis
Up to ₹5 cr	Bharat Sookshma	Named perils
₹5–50 cr	Bharat Laghu	Named perils
₹50–100 cr	SFSP + add-ons	Named perils
₹100 cr+	IAR	All-risk

The assembly principle: the combination a business needs depends on what it owns and does. A manufacturer needs SFSP + MBD + MLOP + LOP; a software firm needs EEI + BI + a separate cyber policy; a warehouse needs SFSP + Burglary + a goods-held-in-trust endorsement for customers' stock. There is no default bundle — only a map from each asset and each risk to the cover that answers it.

Part II

All-Risk versus Named Perils, the Landlord-Tenant Gap, and What Property Insurance Never Covers

Why the IAR's all-risk basis protects against the unanticipated while named-perils policies cover only the listed; how the lease — not the law — divides insurance duty between landlord and tenant, leaving leasehold improvements stranded; and the exclusions that send businesses to transit, cyber and liability covers instead.

Part II · Page 6

All-Risk vs Named Perils

Named Perils — Cover the Listed

The SFSP and the two standardised small-business products cover only events explicitly named. If a new type of damage occurs that is not on the list, there is no cover. Simpler to manage and adequate for most common SME risks.

All-Risk — Cover Everything But the Excluded

The IAR's property-damage section covers all physical damage except what is explicitly excluded. An unanticipated event that isn't on the exclusion list is still covered — meaningfully broader protection and fewer disputes for complex facilities.

The Landlord-Tenant Gap

The landlord insures the building shell; the tenant insures stock, equipment, electronics and liability. The trap: leasehold improvements — false ceilings, custom flooring, built-in storage worth ₹25–50 lakh — fall between the two. The landlord's policy excludes them; the tenant's stock policy excludes fixed interiors. Only a specific declaration in the tenant's own policy closes it.

Who Insures What

Asset	Responsible Party
Building shell	Landlord
Stock in trade	Tenant
Plant & equipment	Tenant
Electronic / IT assets	Tenant
Leasehold improvements	Tenant (declare!)

In India, insurance duty between landlord and tenant is governed entirely by the lease. The Transfer of Property Act and tenancy law prescribe no specific insurance obligations — it is a contractual matter. Review the lease's insurance clause and confirm there is no gap between what the landlord commits to insure and what falls to the tenant.

What It Does Not Cover

Excluded	Where to Go Instead
Goods in transit	Marine / Goods-in-Transit
Cyber / data breach	Cyber Insurance
Inventory shrinkage	Not insurable
Downtime from breakdown	MLOP extension
Contractual liability	Liability cover

EEI covers physical damage to electronic equipment; financial loss from hacking or ransomware is a cyber risk needing a separate policy. Gradual pilferage and unexplained stock disappearance are never covered — insurance answers sudden, identifiable loss events, not cumulative attrition.

Part III

Valuing the Assets, Avoiding the Average Clause, and How the Premium Is Taxed

Why replacement cost — never depreciated book value — is the only safe basis across building, plant, stock, electronics and leasehold improvements; how the principle of average punishes under-insurance proportionally; the distinct risk profiles of offices, retail, hotels, warehouses and hospitals; and why the premium is a Section 37(1) business expense with recoverable GST.

Part III · Page 8

Value at Replacement Cost

Asset Class	Insure At
Building	Current reinstatement cost
Plant & machinery	Current replacement cost
Stock in trade	Cost price, reviewed often
Electronics	Current replacement cost
Leasehold improvements	Reinstatement cost

The Average Clause — A Worked Example

Insure machinery for ₹2 crore when its true replacement value is ₹3 crore — under-insured by one-third. A partial-loss claim of ₹90 lakh is then paid at two-thirds: only ₹60 lakh. The remaining ₹30 lakh is your own uninsured loss. Book value almost always under-insures: a server shown at ₹8 lakh may cost ₹35 lakh to replace; a factory built ten years ago may cost 40–60% more to rebuild today.

The fix is simple and entirely within the owner's control: value every asset class at what it costs to replace today, and review sums insured annually as construction rates, equipment prices and stock levels move.

Property Types, Distinct Risks

Property	Dominant Exposure
Office	Theft, IT / EEI, downtime
Retail	Stock theft, seasonal peaks
Hotel	Wide assets + interruption
Warehouse	Third-party goods held
Hospital	High-value medical EEI

Tax Treatment (FY 2025-26)

Every commercial property premium — fire, MBD, EEI, burglary, business interruption — is deductible as a business expense under Section 37(1), provided it is incurred wholly for business. It applies to proprietors, partnerships, LLPs and companies alike. This is not a personal 80C/80D deduction. For premises used partly for personal purposes, only the business proportion is deductible.

18% GST — and the Input Tax Credit

GST on commercial property premiums stands at 18%. For a GST-registered business, that 18% is claimable as Input Tax Credit when the cover is for business purposes and standard ITC conditions are met — effectively cutting the net premium. The September 2025 GST exemption for individual life and health insurance does not extend to general insurance; commercial property stays at 18%.

A warehouse holding customers' goods must declare them under a goods-held-in-trust endorsement or a bailee's liability policy — standard property cover insures only the insured's own assets.

Part IV

The Verdict

Build a programme. Do not buy a policy.

Part IV: The Verdict · Page 10

30-Second Summary

Commercial property insurance protects a business's physical assets — building, plant, machinery, stock and electronics — against fire, disaster, theft, equipment failure and the revenue lost during downtime. In India it is almost never one policy. The SFSP is the foundation, covering fire and eleven allied perils, but it leaves out machinery breakdown, standalone burglary, electrical damage to electronics and downtime revenue. Those gaps are filled by MBD, Burglary, EEI and Business Interruption cover — escalating to the all-risk IAR policy above ₹100 crore.

Value every asset at replacement cost, not book value, or the average clause cuts your claims proportionally. If you lease, close the landlord-tenant gap by declaring leasehold improvements in your own policy. The premium is a Section 37(1) business expense — not a personal 80C/80D deduction — and the 18% GST is recoverable as input tax credit by a GST-registered business. Above all, treat this as a programme to assemble, mapped asset by asset, and reviewed every year.

"The question is never 'do I have insurance?' — it is 'which risks have I actually covered?' A fire policy answers one. The machine that fails from within, the thief in the night, the servers fried by a surge, the months of silence after the smoke — each needs its own answer. Insurance for a business is not a purchase. It is a portfolio of protections, and the gaps between them are where losses live."
The Final Orientation

The Bottom Line: Do not buy a policy — build a programme. Inventory every asset class at current replacement value, then map each to its cover: fire to SFSP, internal failure to MBD, electronics to EEI, theft to Burglary, revenue loss to LOP or MLOP, and large industrial risk to IAR. Add earthquake, terrorism and flood endorsements where the location demands. If you lease, declare leasehold improvements yourself. Review sums insured annually so the average clause never bites. Deduct the premium under Section 37(1) and reclaim the 18% GST as input tax credit. For significant asset values, use an IRDAI-registered broker over an individual agent.

ADWIZR · July 2026

Decision Rules

Do This

✓ Map every asset to a cover

✓ Insure at replacement cost

✓ Declare leasehold improvements

✓ Review sums insured annually

Avoid This

✕ Relying on fire cover alone

✕ Insuring at book value

✕ Forgetting downtime revenue

✕ Ignoring the lease clause

Three Misconceptions

What Business Owners Get Wrong

(1) "My fire policy covers everything." It excludes machinery breakdown, theft, electrical damage to electronics and downtime revenue. (2) "I insured for the value in my books." Book value under-insures; the average clause then cuts every claim. (3) "The landlord's policy covers my interiors." It excludes tenant leasehold improvements — you must declare them.

IAR vs a Bundle of Policies

Integrated vs Assembled

IAR: one all-risk package with integrated machinery and business-interruption sections, consistent terms — best above ₹100 crore. A bundle of separate named-perils policies risks gaps between them and inconsistent settlement when one event triggers several — but is entirely adequate for smaller businesses.

Core covers

SFSP · MBD · EEI · Burglary · BI · IAR

₹100 cr

IAR threshold

All-risk basis

37(1)

Tax section

Business expense; 18% GST ITC

Business FAQ

Questions Indian Business Owners Ask

Six questions, answered directly.

Business FAQ · Page 12

Frequently Asked Questions

Q1 Is commercial property insurance mandatory in India?

No national law universally mandates it for all businesses. But it is effectively required in several practical contexts: institutional lenders making loans against commercial property require the asset to be insured; certain regulatory frameworks — factory licensing, food safety, healthcare facility licensing — may require minimum cover; and commercial lease agreements frequently require tenants to carry specified covers. Large listed companies are also expected to disclose material insurance arrangements under SEBI's governance frameworks.

Q2 IAR policy or a bundle of separate SFSP, MBD and LOP policies?

The Industrial All Risk policy is an all-risk package with integrated machinery and business-interruption sections — comprehensive cover under one coordinated framework with consistent terms. Assembling separate named-perils policies risks coverage gaps between them and inconsistent settlement when one event triggers several at once. Above ₹100 crore combined sum insured, the IAR's coherence and breadth usually make it the better choice. For smaller businesses, assembling separate policies from the standardised IRDAI range is entirely adequate.

Q3 Our warehouse stores customers' goods — are they covered under our fire policy?

Not automatically. Standard commercial property policies cover assets owned by the insured. Goods belonging to customers held on your premises must be specifically declared under a "goods held in trust" endorsement, or covered under a separate bailee's liability policy. Warehouse operators and third-party logistics providers should treat this as a priority item — failing to cover customers' goods creates both contractual liability and reputational risk.

Q4 We're a software firm in a leased office — what do we actually need?

The composition differs from a manufacturer. The key physical assets are electronic equipment — laptops, servers, networking hardware — covered by Electronic Equipment Insurance, not just fire cover. Stock and heavy machinery are not relevant. Business interruption from an office fire or equipment loss should still be considered. The landlord likely insures the building shell, so you insure leasehold improvements, IT equipment and your firm's contents. A separate cyber insurance policy for data breach and ransomware is equally important and entirely distinct from physical property cover.

Q5 Does machinery breakdown insurance cover lost production during the repair?

No — not under the standard MBD policy, which covers the cost of repairing or replacing the damaged machine and its parts. The financial loss from production downtime — lost profit and increased working costs — is classified as consequential loss and is specifically excluded. That consequential loss requires a separate Machinery Loss of Profits (MLOP) extension, available for additional premium alongside the MBD cover. On a single-line operation, downtime can cost far more than the repair itself.

Q6 How does the principle of average apply to commercial property insurance?

As in fire insurance, if a property is insured for less than its true replacement value, the insurer applies the principle of average to cut claim payouts proportionally. Insure machinery for ₹2 crore when its actual replacement value is ₹3 crore — under-insured by one-third — and a partial-loss claim of ₹90 lakh is paid at two-thirds, only ₹60 lakh. The remaining ₹30 lakh is your own uninsured loss. This is entirely avoidable by setting accurate sums insured and reviewing them annually.

Key Terms & Definitions

Standard Fire & Special Perils Policy (SFSP)

The foundational commercial property cover: it protects building, plant, machinery and stock against fire and eleven allied named perils including floods, storms, riots and subsidence. Earthquake and terrorism are excluded by default and must be added as endorsements. It is named-perils cover — only listed events are insured.

Machinery Breakdown (MBD)

Cover for sudden, accidental mechanical or electrical failure of machinery from internal causes — short circuits, structural defects, loose parts, lack of lubrication — the very risk the fire policy excludes. It repairs or replaces the machine but not the profit lost during downtime, which needs a separate MLOP extension.

Electronic Equipment Insurance (EEI)

A specialist cover for electronic devices — computers, servers, control panels, medical diagnostic equipment — against physical damage from short circuits, power surges and accidental causes. Data restoration is usually an optional add-on. It does not cover cyber losses such as hacking or ransomware.

Business Interruption / Loss of Profits (LOP)

Cover for the gross profit lost while a business cannot operate after a covered physical loss, plus increased costs of minimising disruption. A LOP claim is valid only if a corresponding physical-loss claim is first admitted under the linked fire policy.

Industrial All Risk (IAR) Policy

The flagship product for large industrial risks with combined sum insured of ₹100 crore or more. An all-risk package in four sections — property damage, machinery breakdown, fire loss of profits and machinery loss of profits — covering everything except explicit exclusions, rather than only named perils.

Principle of Average

The rule that reduces a claim proportionally when a property is insured for less than its true replacement value. Insure at two-thirds of value and a partial claim is paid at two-thirds. Avoided only by insuring every asset class at current replacement cost and reviewing sums insured annually.