Technology is a double-edged sword. Even after you use the latest ones and take every precaution you possibly can, you never know what might trigger a fire. The foresight of fire is seemingly impossible. Not only electrical malfunction, but a fire can also be the result of a careless employee forgetting to stub a cigarette or an employee forgetting to shut the stove in the office pantry.
In December 2017, a building in a prominent commercial complex in South Mumbai had caught fire, causing loss of lives and property damage. The building’s fire insurance had expired just a few weeks before the incident and the owners couldn’t claim any damages. A business, however small or big, could face dramatic unexpected circumstances, which could cripple and ruin the business. However, you can be a step ahead by buying an insurance plan for your business. It is compelling to obtain fire insurance for your business as it can cover a lot of risks, including a complete shutdown of the business.
If you are still giving ‘Fire Insurance’ seconds thoughts, here are a few crucial aspects that could help you make a wise decision:
Need for financial coverage
Fire insurance usually covers machinery and equipment, stock and inventory, furniture and electronics and the building. Having fire insurance can do a lot of damage control. Most of the fire insurances provide a cover from damages caused by fire and even suppression materials. Not only fire but fire-repellent materials like water, powder, and foam, which are used to douse flames, can damage the business property. If you don’t have fire insurance or have one that is expired or is inadequate, a fire could burn a deep hole in your pocket.
Replace damaged goods
People build businesses with great difficulty. Every small element such as a piece of furniture or machinery comes together to complete a business set up. Now imagine, something that someone built over a number of years burning up in a few minutes. For some, it may be impossible to bring the business back to the same position where it was before the fire. The fire insurance covers losses from the affected building as well as the damaged goods. The maintenance and repair charges of the damaged machines and equipment are covered by the insurer as well.
Share financial burden
Imagine a fire that engulfed the entire office? Not having a fire insurance policy can cost the business a lot in terms of recovering from all the losses and purchasing new goods as the whole office might need a do-over. This can also lead to a financial crisis because without insurance you will have no financial assistance. In some cases, re-starting the business can be tough and could lead to complete closure of the company.
During a fire incident, the worst-case scenario is that the whole work area of your office gets affected. In such times, fire insurance is the best way out. It could provide an alternative accommodation for your company. In the meantime, this temporary office can help you serve your regular clients, while the actual place recovers from the damage.
Sense of security
Having fire insurance can also provide you with mental peace and security. Even if you suffer from losses due to a fire accident, you can always rely on the insurance providers as it will reimburse all of the damage.
Things to keep in mind
Now that your consideration for a fire insurance might have become stronger, here are some of the other aspects you should know and keep in mind:
Sum insured value: There are two broad methods to determine the sum insured value in a standard fire insurance policy:
1. Market Value (MV): In the case of MV, in the event of a loss, the depreciation amount is charged on the physical asset depending on its age. Under this method, the business owner (policy holder) is not paid the total amount that will be required to replace the asset post damage. Only the amount equal to the present value of the asset will be paid.
2. Reinstatement Value (RIV): In the case of RIV, the insurer will pay the cost of replacement of the asset and no depreciation charges are levied. The business owner will receive an amount equal to the cost required to replace the asset with a new, similar product. An important point to note here: the RIV is allowed for fixed assets only, not on assets like stocks.
Underinsurance or overinsurance
Both, under-insuring and over-insuring your property will turn out to be expensive for you. Under-insuring would mean that the insurer cannot cover damages exceeding a certain amount and over-insurance would mean that you would end up paying a high amount in premiums. To assess the risks and losses and expenses, businesses must take help from experts who would have the knowledge of how to calculate and decide the amount for the fire insurance.
The companies that are built with old infrastructure cannot meet the current building codes. And the fundamental laws of infrastructure varies from place to place. If the building has never been refurbished or reconstructed, it is impossible for it to have the current codes. However in this case, if the building is completely damaged in the fire, the extra cost of the upgrade to be compliant with existing building codes is not included in the policy. For such kind of coverage, you will have to buy a specific policy, which comes under building ordinance policy.
You can’t control fire but what you can always do is mitigate damage control by ensuring the right amount of coverage in the insurance policy. It is important to assess and calculate the possible losses at the time of buying a policy to ensure that the amount of the policy is enough to recover from maximum losses.
A few other important tips and cues:
- The address mentioned in the contract should be valid.
- Make sure to include two or more buildings insurance in a single policy. It’s much cheaper than individual policies.
- Renew your insurance contract annually to ensure you are covered.
- Train your employees to handle a severe situation like this adequately.
Now that you know the importance of having fire insurance for your business, you might seek the advice of an expert insurance advisor or broker. PlanCover could be your fire insurance partner. Visit the website to know more.