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Business equipment can be covered by standard fire, special perils insurance

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I have some expensive equipment that I have rented out for my business. I want to insure these from theft or other such calamity. How can I do it?

—Name withheld on request

You can buy a standard fire and special perils insurance for your business equipment. Such a policy will cover damages caused due to fire and 11 other risks, including storm, flood, riots, malicious damage and lightning. The policy can be further enhanced to cover risks of earthquake, forest fire and impact damage due to your own vehicles. The last add-on is especially relevant for equipment where cranes are used or materials are being transported using the insured equipment. A common policy that is bought along with fire insurance is burglary policy. You have to specifically request for a theft add-on in the burglary policy.

The fact that you are renting out these equipment should be disclosed to the insurer. You should also declare the location of the machinery. Pricing for such policies depend on the industry; the machine make and type is less relevant. For example, the risk of a computer in a chemical factory is rated differently from that in a management consulting firm. In a low-risk environment, it would cost around 1,000 for every 1 lakh of sum assured with all the above add-on covers built in.

The above policy has a major exclusion—that of fire caused due to short circuit in the equipment itself. Also, any machinery breakdown due to over-heating and excessive running is excluded. To cover that, you can take machinery breakdown insurance. The price of such a policy is around 1,000 for every1 lakh of sum assured.

Is a cashback policy the same as a return of premium plan? Which one is better?

—Name withheld on request

A cashback policy is an endowment savings plan. Herein, a fixed proportion of sum assured is paid out at pre-defined intervals. Assured bonuses are then paid out at maturity. The death benefit in a cashback policy is limited. Typically, such plans yield a return of 3-6%.

A return of premium plan is a type of term plan. The principal objective of the plan is to provide death cover. If the insured dies during the term of the policy, the nominee receives a lump sum. If the insured survives the policy term, then the aggregate premium paid during the term is paid to the policyholders. This is an expensive product because the investment returns are negative if you factor in the time value of money.

If your principle objective is to get a large death benefit, then you should opt for a term insurance with no return of premium.

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