Conceptual · Article 7.3.21

Standard Fire & Special Perils.

Q: What exactly does the SFSP policy cover, and what does it leave out?

The SFSP is a named-perils policy: it covers only the 12 perils listed in the wording — fire, lightning, explosion/implosion, aircraft damage, riot/strike/malicious damage, storm/flood/inundation, impact damage, subsidence/landslide, bursting of water tanks, missile testing, sprinkler leakage and bush fire. Anything not named is not covered. Standard exclusions include theft, terrorism, earthquake, electrical/mechanical breakdown, wear and tear, and consequential loss such as business interruption. Earthquake and terrorism can be added back as endorsements; loss of profits needs a separate Fire Loss of Profits policy linked to the material-damage cover.

India's Workhorse Property Cover — and the Clause That Punishes Under-Insurance.

Published as on 22 July 2026

The Standard Fire & Special Perils (SFSP) Policy is the long-standing named-perils cover that has protected Indian commercial property for decades — buildings, plant and machinery, fittings and stock against fire and eleven allied perils. It covers only what it names: 12 listed perils, nothing more. For risks up to ₹50 crore it has now largely been superseded by IRDAI's standard Bharat products — Griha Raksha for homes, Sookshma and Laghu Udyam Suraksha for enterprises — leaving the SFSP to serve larger and bespoke risks. Its defining feature, and its sharpest edge, is the average clause: under-insure and every claim is scaled down pro-rata from the very first rupee.

12 Perils

Named-Peril Cover

Above ₹50 Cr

SFSP's Domain

18% GST

Input-Credit Eligible

From ₹1

Average Clause Bites

Executive Summary · Page 2

Executive Summary · 6 Findings

The SFSP is the property policy a business buys so that a single fire, storm or riot does not erase years of capital. It answers one question: if my building, machinery or stock is physically destroyed by a listed peril, will I be made whole? The catch sits in that word "listed" — and in a quieter clause most buyers never read. Insure for less than the property is worth, and the insurer pays only the same proportion of every loss, however valid the claim.

Covers what the SFSP is and how a named-perils policy differs from all-risks cover, where it now sits against the Bharat standard products below ₹50 crore, the 12 perils it insures and the exclusions it does not, the average clause and the true cost of under-insurance, reinstatement versus market value, declaration and floater structures for stock, the terrorism and earthquake add-ons, Section 37(1) deductibility with 18% GST input credit, how claims are settled, and six questions Indian businesses ask.

Key Findings

A named-perils policy — it covers only what it lists.

The SFSP insures buildings, plant and machinery, furniture and fittings, and stock against 12 specifically named perils — fire, lightning, explosion, riot and malicious damage, storm and flood, and others. If a peril is not named, it is not covered. That is the opposite of an "all-risks" policy, which covers everything except stated exclusions.

Below ₹50 crore, the Bharat products now lead.

IRDAI's standard products have largely superseded the SFSP for smaller risks: Bharat Griha Raksha for homes, Bharat Sookshma Udyam Suraksha up to ₹5 crore, and Bharat Laghu Udyam Suraksha for ₹5–50 crore. The SFSP now earns its keep chiefly above ₹50 crore, and wherever bespoke terms or unusual occupancies are needed.

The average clause bites from the first rupee.

Insure property for less than its actual value and every claim is cut pro-rata: Claim = Loss × (Sum Insured ÷ Actual Value). Unlike the Bharat products, which forgive under-insurance up to 15%, the standard SFSP has no safe harbour. A 70%-insured warehouse recovers only 70% of any loss — the single costliest error in commercial property cover.

Reinstatement value, not depreciated book value.

Insure buildings and machinery on a Reinstatement Value basis — the cost of a new replacement, with no depreciation deducted — provided you actually rebuild or replace. Market-value cover pays only depreciated worth, rarely enough to buy a replacement at today's prices. Stock, by rule, can only be insured on market value.

A deductible business cost — with GST input credit.

For business property the premium is deductible: buildings, plant and fittings under Section 37(1), stock under Section 36(1)(i), under both tax regimes. The 18% GST on the premium is typically reclaimable as input tax credit, cutting the effective cost. For personal property there is no deduction — no 80C, no 80D.

Add back the gaps the standard wording leaves.

Earthquake, terrorism, spontaneous combustion and debris removal are excluded or optional. Businesses in seismic zones IV and V should add earthquake cover; terrorism is available via the GIC Re-managed pool up to ₹750 crore per location; and income lost during shutdown needs a separate Fire Loss of Profits policy linked to the SFSP.

At A Glance

Metric	Value	Detail
Cover type	Named perils	12 listed perils
Insures	Building · Plant · Stock	Business assets
SFSP domain	Above ₹50 cr	& bespoke risk
SI basis	Reinstatement / Market	Stock: market only
GST	18%	Input credit (business)
Tax (business)	Deductible	Sec 37(1) / 36(1)(i)
Under-insurance	Average clause	From first rupee
Best for	Large / complex risk	Not homes

Exhibit 01: The Average Clause on a ₹3 Crore Stock

Sum Insured	Cover %	Paid on ₹90L Loss
₹3.0 cr	100%	₹90.0 lakh
₹2.4 cr	80%	₹72.0 lakh
₹2.1 cr	70%	₹63.0 lakh
₹1.5 cr	50%	₹45.0 lakh

Illustrative. Property actually worth ₹3 crore; a fire causes ₹90 lakh of stock damage. The insurer pays only the insured proportion of the loss — the under-insured share is borne by the business, despite a valid policy and full premium. The standard SFSP applies this from the first rupee of shortfall, with no 85% cushion.

The Opening · Page 3

The Opening

The Standard Fire & Special Perils Policy is deceptively named. "Fire" is only the first of twelve perils it covers, and "standard" hides how much it can be tailored. At its heart it is a bargain: the insurer promises to restore your physical assets — factory shed, machinery, warehouse stock — if any of a defined list of catastrophes strikes. Buy cover for a building worth ₹8 crore and, after a fire, the insurer rebuilds it. But the policy names its perils precisely, and it draws value from a number you choose yourself — the sum insured. Choose that number too low and the whole promise shrinks with it.

"A fire policy does not fail its owner in the flames — it fails months earlier, on the day a sum insured is set at book value instead of replacement cost. The average clause simply reveals the mistake, and sends the bill."
Under-Insurance, Not Fire, Is the Real Risk

The mechanics. The SFSP is a material-damage policy: it pays to repair or replace physical property, and nothing more. It says nothing about the profit you lose while the factory is dark, the theft that follows a riot, or the machine that simply breaks — each needs its own cover. Within its named perils it is generous; outside them, silent. Reading the wording is not optional, because what is not listed is not paid.

The 2026 context. The SFSP no longer sits alone. Since IRDAI introduced the standard Bharat products, most homes and businesses below ₹50 crore are better served by Griha Raksha, Sookshma or Laghu Udyam Suraksha — simpler wording, and a 15% under-insurance cushion the SFSP does not grant. The traditional SFSP now concentrates where it always excelled: large industrial risks, multi-location operations and occupancies that resist a standard template.

The Honest Boundary: The SFSP is NOT an all-risks policy — an unlisted peril is uninsured. It is NOT a business-interruption cover — lost profit needs a separate FLOP policy. It does NOT include theft, terrorism or earthquake as standard. And it is NOT the right product for a home or a small shop — a Bharat standard product usually is. It IS the flexible, bespoke property cover built for larger and complex commercial risks, provided the sum insured tracks real replacement cost.

Structure

Part I

What the SFSP Is, Who It Insures & Where the Bharat Products Now Lead

Part II

The 12 Perils, the Exclusions & the Average Clause

Part III

Sum Insured, Declaration & Floater Policies, Add-Ons & Tax

Part IV

The Verdict: Right Product, Right Sum Insured

SFSP Fits If

✓ Total assets exceed ₹50 crore

✓ You need bespoke clauses / add-ons

✓ Large or complex industrial risk

✓ Multi-location stock (floater)

Prefer Bharat If

✕ It is your home (Griha Raksha)

✕ Micro/small ≤ ₹5 cr (BSUS)

✕ SME ₹5–50 cr (BLUS)

✕ You want an 85% safe harbour

Part I

What the SFSP Is, Who It Insures, and Where the Bharat Products Now Lead

The logic of a named-perils policy and how it differs from all-risks cover; the four classes of asset it protects; and the ₹50-crore line at which IRDAI's standard Bharat products — Griha Raksha, Sookshma and Laghu Udyam Suraksha — have largely superseded the traditional SFSP.

Part I · Page 4

What It Insures

Asset Class	Examples	SI Basis
Buildings	Factory, warehouse, office	Reinstatement
Plant & machinery	Equipment, generators	Reinstatement
Fittings (FFFE)	Furniture, IT, electricals	Reinstatement
Stock	Raw material, WIP, finished	Market only

A named-perils policy covers only the perils it lists; an all-risks policy covers all perils except those it excludes. The SFSP is firmly the former — its protection is exactly as wide as its list of twelve perils, and no wider. That precision is why the wording matters: cover is defined by what is written in, not what is left out.

Why It Still Exists

Flexibility for Complex Risk

The Bharat products are standardised — every insurer must offer identical wording. That is a strength for a shop and a constraint for a refinery. The SFSP is the bespoke alternative: freely priced, endorsable, and structured around the actual risk — special clauses, unusual occupancies, and tailored add-ons the standard template cannot accommodate. For large and non-standard risks, that flexibility is the whole point.

The Fire-Insurance Ladder

Product	Segment	Sum Insured
Griha Raksha	Homes	Home & contents
BSUS	Micro / small	Up to ₹5 cr
BLUS	SME	₹5 cr – ₹50 cr
SFSP	Any / large	No upper limit

The guiding principle is match the product to the risk. Below ₹50 crore, the Bharat products win on simplicity and their 15% under-insurance cushion. Above it — and for any risk that resists a standard template — the SFSP is the appropriate, and often the only, choice.

Where SFSP belongs: a manufacturer with plant, sheds and stock together worth ₹120 crore; a hotel or hospital with bespoke occupancy needs; a trading house with stock floating across a dozen godowns; a business wanting terrorism, earthquake and machinery-linked endorsements structured to its own risk. Where it does not: a family home or a single small shop — a Bharat product is simpler, cheaper to administer, and more forgiving on under-insurance.

Part II

The 12 Perils, the Exclusions, and the Clause That Punishes Under-Insurance

The twelve named perils the SFSP insures and the major exclusions it leaves out — theft, terrorism, earthquake, breakdown and business interruption; and the average clause, which quietly turns a shortfall in the sum insured into a shortfall in every claim.

Part II · Page 6

The 12 Named Perils

#	Peril
1–3	Fire · Lightning · Explosion / implosion
4–5	Aircraft damage · Riot, strike & malicious damage
6–7	Storm, flood & inundation (STFI) · Impact damage
8–9	Subsidence & landslide · Bursting of water tanks / pipes
10–12	Missile testing · Sprinkler leakage · Bush fire

Riot, strike and malicious damage (RSMD) and the full storm-flood group are built into the modern SFSP as standard, not bought as separate endorsements. But cover stops at the edge of the list — and several of the risks a business most fears sit just outside it.

Major Exclusions

Not Covered as Standard

Theft (needs a Burglary policy), terrorism and earthquake (optional endorsements), electrical / mechanical breakdown (needs Machinery Breakdown cover), wear, tear, rust and corrosion, war and nuclear perils, and wilful destruction. Above all, consequential loss — lost profit and business interruption — is excluded and requires a separate Fire Loss of Profits (FLOP) policy linked to the SFSP.

The Average Clause

Under-Insurance = Co-Insurance

If the sum insured is below the property's actual value at the time of loss, the insurer treats the shortfall as self-insurance you carry, and scales every claim to match:
Claim = Assessed Loss × (Sum Insured ÷ Actual Value). It applies even to partial losses far smaller than the sum insured.

Worked Example — the ₹27 Lakh Gap

Stock worth ₹3 crore, insured for ₹2.1 crore (70%). A fire causes ₹90 lakh of damage. The insurer pays ₹90 lakh × (2.1 ÷ 3.0) = ₹63 lakh. You absorb ₹27 lakh — with a valid policy, on full premium. The entire gap is caused by under-insurance alone.

SFSP vs Bharat on Under-Insurance

Aspect	SFSP	BSUS / BLUS
Safe harbour	None	85%
Average from	First rupee	Below 85%
Pricing	Market	Standardised
SI upkeep	Critical	Cushioned

The single most common and costly error in commercial fire cover is chronic under-insurance from infrequent revision of the sum insured. Independent professional valuation of plant and machinery — where replacement cost far exceeds book value — is the standard defence.

Part III

Sum Insured, Stock Structures, Add-Ons, and Tax

Reinstatement value versus market value and why the choice decides whether a claim rebuilds you; declaration and floater policies for fluctuating and multi-location stock; the earthquake and terrorism add-ons; and Section 37(1) deductibility with 18% GST reclaimable as input credit.

Part III · Page 8

Two Bases of Sum Insured

Basis	Pays	On ₹50L Machine
Market value	Depreciated	~₹18 lakh
Reinstatement	New replacement	~₹70 lakh

Insure to Rebuild, Not to Book Value

A 10-year-old machine that cost ₹50 lakh may have a market value of ₹18 lakh but a replacement cost of ₹70 lakh. On market-value basis a total loss pays ₹18 lakh — nowhere near enough to replace it. Reinstatement basis pays the ₹70 lakh replacement cost with no depreciation, provided you actually rebuild or replace; elect not to, and the claim reverts to market value. Stock cannot use this basis — it is always market value.

Two Structures for Stock

Declaration Policy — Fluctuating Levels

Set a provisional SI at peak stock, pay full premium upfront, declare actual value monthly, and re-average at year-end — with any refund capped at 50% of the provisional premium. Stock only; SI cannot be reduced mid-year; the average clause still applies.

Floater Policy — Multiple Locations

A single SI floats across several named godowns, so stock can move between them without coverage gaps. Common for FMCG distributors and retail chains. Total stock across all sites is measured against the floater SI — under-insure the aggregate and the average clause bites.

Key Add-Ons

Add-On	Fills the Gap Of
Earthquake	Shock & consequent fire
Terrorism	Via GIC Re pool, ₹750 cr/location
Spontaneous combustion	Coal, cotton, chemicals
Debris removal	Post-loss clearing cost
Architects' fees	Reconstruction fees

Seismic Zones IV & V — Add Earthquake

Earthquake is excluded from the base SFSP. For property in high-risk zones — the Himalayan belt, the Indo-Gangetic plain and the Northeast — a quake can cause total structural and stock loss the standard policy leaves entirely uncovered. The endorsement is optional everywhere but strongly advisable there.

Tax & GST (FY 2025-26)

Item	Business	Personal
Building / plant	Sec 37(1) ✓	None
Stock	Sec 36(1)(i) ✓	None
GST 18%	Input credit	Cost

For business property the premium is deductible under both tax regimes, and a GST-registered business can typically reclaim the 18% GST as input tax credit — lowering the effective cost. For personal property there is no deduction and GST is a pure cost. The September 2025 GST reform on life and health cover did not extend to property/fire insurance.

Part IV

The Verdict

The right product, insured to its true replacement cost.

Part IV: The Verdict · Page 10

30-Second Summary

The SFSP is India's traditional named-perils property policy — covering buildings, plant, fittings and stock against 12 listed perils, from fire and lightning to riot, storm and flood. It pays for material damage only, and only for what it names. For risks up to ₹50 crore, IRDAI's Bharat products — Griha Raksha, Sookshma and Laghu Udyam Suraksha — have largely superseded it, offering simpler wording and a 15% under-insurance cushion. The SFSP now belongs to larger, complex and bespoke risks.

Two decisions dominate every SFSP. First, the basis: insure buildings and machinery at reinstatement (replacement) cost, not depreciated book value — and keep stock, which can only be market-value, current. Second, the amount: the average clause scales every claim to the ratio of sum insured to actual value, from the first rupee of shortfall. Add back the gaps — earthquake in seismic zones, terrorism, and a FLOP policy for lost profit. For a business, the premium is deductible and the 18% GST is usually reclaimable as input credit; for personal property, neither applies.

"A fire policy is only as strong as the number written against 'sum insured'. Name the right perils, add back the earthquake and the lost profit, and above all insure to what it costs to rebuild today — not what the ledger says the asset is worth. Get that number right and the policy does its job. Get it wrong and the average clause quietly does the rest."
The Final Orientation

The Bottom Line: Choose the SFSP for large or complex risk above ₹50 crore, or where bespoke terms are needed; below that, a Bharat product is usually better. Insure buildings and plant on reinstatement value, review the sum insured at least annually and value machinery independently every few years — under-insurance is the costliest, most avoidable error. Add earthquake in zones IV and V, terrorism where footfall or profile warrants it, and a linked FLOP policy for business interruption. Use a floater for multi-location stock and a declaration policy for fluctuating levels. Claim the Section 37(1)/36(1)(i) deduction and the GST input credit on business cover. Verify current wording, exclusions and add-on terms with your insurer before buying.

ADWIZR · July 2026

Decision Rules

Get It Right

✓ Insure at reinstatement cost

✓ Review the SI every year

✓ Add earthquake / terrorism / FLOP

✓ Claim deduction & GST credit

Costly Mistakes

✕ Insure at book / depreciated value

✕ Set SI once and forget it

✕ Assume theft / breakdown covered

✕ Use SFSP for a home / small shop

Three Misconceptions

What Buyers Get Wrong

(1) "Full premium means full payout." Not if under-insured — the average clause scales the claim regardless. (2) "Fire cover pays my losses while I'm shut." No — material damage only; lost profit needs a FLOP policy. (3) "Everything's covered." Theft, terrorism, earthquake and breakdown are excluded or optional.

How a Claim Settles

Notify · Survey · Settle

Notify the insurer immediately and file an FIR where relevant. Claims above ₹50,000 require a licensed surveyor, who assesses cause and quantum and checks the SI against actual value. The insurer applies the average clause and deductible, then settles. IRDAI norms: acknowledge in 3 working days, settle within 30 days of full documents (longer for complex large losses).

Named perils

Material damage only

>₹50 cr

SFSP domain

Below it: Bharat

From ₹1

Average clause

No 85% cushion

Business FAQ

Questions Businesses Ask

Six questions, answered directly.

Business FAQ · Page 12

Frequently Asked Questions

Q1 What exactly does the SFSP cover, and what does it leave out?

It is a named-perils policy covering 12 listed perils — fire, lightning, explosion/implosion, aircraft damage, riot/strike/malicious damage, storm/flood/inundation, impact damage, subsidence/landslide, bursting of water tanks, missile testing, sprinkler leakage and bush fire. Anything not named is not covered. Standard exclusions include theft, terrorism, earthquake, electrical/mechanical breakdown, wear and tear, and consequential loss such as business interruption. Earthquake and terrorism can be added back as endorsements; lost profit needs a separate Fire Loss of Profits policy linked to the material-damage cover.

Q2 Should I buy an SFSP or one of the Bharat standard products?

For most homes and smaller businesses, the IRDAI Bharat products have superseded the SFSP for risks up to ₹50 crore. Use Bharat Griha Raksha for a home, Bharat Sookshma Udyam Suraksha for a micro/small enterprise up to ₹5 crore, and Bharat Laghu Udyam Suraksha for ₹5–50 crore. These carry an 85% under-insurance cushion and simpler wording. The SFSP now earns its place mainly on larger or complex risks above ₹50 crore, or where you need bespoke clauses, unusual occupancies, or a tailored add-on structure the standard products do not offer.

Q3 How does the average clause work, and why does under-insurance cost so much?

The average clause treats any shortfall between the sum insured and the actual value of the property as self-insurance you carry. The claim is scaled by the ratio of sum insured to actual value: Claim = Assessed Loss × (Sum Insured ÷ Actual Value). Insure stock worth ₹3 crore for only ₹2.1 crore (70%) and a ₹90 lakh fire loss pays just ₹63 lakh — you absorb ₹27 lakh despite a valid policy and full premium. Crucially, the standard SFSP applies the average clause from the very first rupee of under-insurance, with no 85% safe harbour like the Bharat products. Keep sums insured current with replacement cost.

Q4 Is the SFSP premium tax-deductible, and what about GST?

For business property the premium is a deductible business expense — buildings, plant, machinery and fittings under Section 37(1), and stock cover under Section 36(1)(i) — under both the old and new regimes, as a deduction from business income. SFSP premiums attract 18% GST, which a GST-registered business can typically claim as input tax credit, lowering the effective cost. For personal (non-business) property there is no deduction — SFSP premium does not qualify under Section 80C or 80D.

Q5 Should I insure on market value or reinstatement value?

Market value pays the depreciated worth of an asset — original cost minus accumulated depreciation — which after a total loss is usually not enough to buy a replacement at today's prices. Reinstatement value pays the current cost of a new asset of similar type and capacity, with no depreciation deduction, provided you actually rebuild or replace. For buildings, plant and machinery, reinstatement value basis is almost always the right choice, but you must keep the sum insured aligned to current replacement cost or the average clause still applies. Stocks can only be insured on market value basis.

Q6 I store stock across several godowns and my levels swing through the year. What structure fits?

Two tools help. A Floater Policy lets a single sum insured float across multiple named locations, so stock can move between godowns without coverage gaps — useful for distributors and retail chains. A Declaration Policy handles fluctuating stock value over time: you set a provisional sum insured at the peak, pay full premium upfront, submit monthly declarations of actual value, and the premium is re-averaged at year-end, with a refund capped at 50% of the provisional premium. Both attract the average clause, and both apply only to stock — buildings and machinery must be insured separately.

Key Terms & Definitions

Named-Perils Policy

A policy that covers only the perils it specifically lists. The SFSP names 12 perils; anything not named is not covered. This is the opposite of an all-risks policy, which covers every peril except those it expressly excludes.

Average Clause

The provision that reduces a claim in proportion to any under-insurance: Claim = Assessed Loss × (Sum Insured ÷ Actual Value). On the standard SFSP it applies from the first rupee of shortfall, unlike the Bharat products' 85% safe harbour. It bites even on partial losses.

Reinstatement Value

A sum-insured basis paying the current cost of replacing an asset with a new one of similar type and capacity, with no deduction for depreciation — conditional on the asset actually being rebuilt or replaced. Preferred for buildings, plant and machinery; unavailable for stock.

Declaration Policy

A structure for stock whose value fluctuates: a provisional sum insured is set at peak, full premium paid upfront, actual value declared monthly, and premium re-averaged at year-end — with any refund capped at 50% of the provisional premium. Stock only; the average clause still applies.

Floater Policy

A single sum insured that floats across several named locations, letting stock move between godowns or outlets without coverage gaps. Total stock across all sites is measured against the floater SI — under-insure the aggregate and the average clause applies.

Fire Loss of Profits (FLOP)

A separate policy, linked to the SFSP material-damage cover, that pays for income lost and standing costs incurred while a business is disrupted after an insured peril. The SFSP itself covers physical damage only, never consequential loss.