First Loss Policy in Burglary Insurance

                       

It is well known that burglary insurance policy protects individuals, businesses against losses resulting from burglary. Burglary means the illegal entry into a building with intent to commit a crime, especially theft. Willful intent to steal & cause damage is burglary. Burglary insurance policy is designed to provide financial compensation for the loss or damage of insured property due to burglary/theft-related incidents. The policy covers buildings, offices, homes, warehouses, and other structures. It may also extend to cover the contents within those premises, such as furniture, equipment, inventory, and personal belongings.There are two types of burglary insurance policies:

Full value Insurance: Cover is for all property and complete sum insured is reckoned for premium rating.

First loss Policies: Cover for partial sum insured as chosen by the insured.

First loss insurance in burglary insurance

First-loss insurance concept is most commonly used in burglary insurance to insure against events where a total loss is extremely rare. Examples are

·        Coal in godowns

·        Iron & Steel stocks

Anything that cannot be easily picked up, can be covered under a first loss policy. Although the stock is huge the chances of theft and burglary are less and remote due to the surroundings, nature of stock and the financial consequence. However, diamonds, gold jewelry, and  precious stones are not covered under a first loss policy.

 

In a first loss policy, an estimate is made by the policyholder, with respect to the risk exposure of the goods, and sum insured can be determined based on the level of risk exposure.

 Features of the first loss insurance policy

First loss insurance policy pays for loss /damage up to a percentage of the total sum insured. This is known as the first-loss limit. This insurance cover is for individuals or businesses with less exposure to burglary, due to the nature of their commodity. Insurers provide coverage up to the agreed first loss limit and at a lower premium and insurers are not liable for the entire value of the insured property. If a loss exceeds the first loss limit, the policyholder is responsible for the remaining portion of the loss.

In first-loss policies, the policyholder gives an estimate of the maximum probable loss that they are willing to bear in the event of a loss. Full value of the property may not be assessed in detail for the purpose of insurance.

In the event of damage, the policyholder does not seek compensation for losses below the pre-established first-loss level.

Unfortunately, a first-loss policy may leave an individual underinsured and he may be forced to pay for some damages out-of-pocket.

Advantages of a first loss policy in burglary insurance

First-loss policies can be purchased at lesser premium since the full value is not covered. It is accessible to individuals or businesses with limited budgets and who are willing to bear the financial burden to some extent.

First loss policies are a type of customized covers as policyholders can seek coverage as per their specific needs. Policyholder can select a limit according to the risk exposure and ensure adequate protection by paying only for the limited cover.

First-loss insurance is an effective risk management tool for businesses or individuals. These policies work well for policies with higher sum insured.

 Disadvantages of a first loss policy

Reduces premium due to limited sum Insured, but limits claim to the opted sum insured under first loss.

Under a first loss policy, the maximum claim amount payable to the insured is the amount stated as the first loss limit. If the loss amount is more than the first loss limit, it has to be borne by the insured.

For example, sum insured is Rs 1 crore for timber logs, then a 10% first loss sum insured comes to Rs 10 lacs. Burglary & theft of a stock above Rs 10 lacs is rare for a stock that is heavy and not easy to move. Hence it helps the insured in minimizing the premium load in a policy.

The coverage provided by burglary insurance typically includes reimbursement for stolen items or the cost of repairing or replacing damaged property caused by the break-in.Since first-loss policies are designed to cover specific assets or risks, they do not offer comprehensive protection for all assets or liabilities. This may leave certain assets or risks uninsured or underinsured.

A comprehensive analysis of the items to be insured must be made and evaluated for the severity and financial impact that the business is likely to suffer in the event of a loss. Traditional insurance policies provide coverage for the full value of assets or risks, while first-loss insurance offers coverage only up to a specified limit. Policyholders can stay insured with adequate coverage with lesser premiums. Only assets that are vulnerable to risk can be insured by this type of policy

We at Zen Insurance Brokers assist in choosing the right insurance cover to suit your needs. Please contact us for assistance.

Disclaimer:

Zen Insurance Brokers is an IRDAI registered broker which facilitates quick & accurate insurance broking services. We deal with only regulator approved products of insurers. We do not underwrite the products.