The Books of Accounts represent the historical cost of the assets i.e at the price these were purchased and with the passage of time, these assets depreciate in value but whereas the price of assets to be replaced invariably increases.
The value of assets to be insured should invariably be as per the current prevailing price in the market. However furnishing of this information is an uphill task for large organizations as to get the quotes for each and every machine and their accessories at the time of renewal of fire policy is a tedious work. It is thus recommended that the RBI Index of respective industry may be applied to calculate the value of plant & machinery and including additions/reductions during the course of the year leading to renewal of the policy. RBI Index is available at www.rbi.org/publication/annualpublication/wholesalepriceindex
Miscellaneous expenses during construction or acquiring the assets related to know-how of technology fees /R & D/license/ franchisee etc are ignored while applying the RBI Index. Basic idea is not to inflate the total value of the assets unnecessary resulting in paying higher premium.
The period of insurance must be specifically defined in the policy. Generally the period of fire insurance will not exceed by one year. The period can be less than one year but not more than one year except for the residential houses which can be insured for the period exceeding one year also to get extra leverage of adequate time available to its renewal as and when due well in time without any risk of a break in which any unfortunate incident of loss can happen with irreparable loss.