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First Loss vs Full Value

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You will probably come cross this question when insuring your content for either a fire insurance or burglary insurance. What value should you insured for your content? And what is the difference between First Loss and Full Value?

Insuring your content on a Full Value basis is straight-forward. If your content or stock is worth RM500,000, and you insured it against loss of fire, theft, burglary for RM500,000, then you are insuring your content/stock/equipment etc on a Full Value basis.

In the event of a loss, whatever amount of losses you suffer, your policy will pay you up to RM500,000.

As for First Loss basis, this is where you do not insured the full amount, instead you insured only for a percentage of your actual value. Taking the above example, instead of insuring for RM500,000 (full value), you opt to only insured for RM100,000 (20%). That would mean that the remaining RM400,000 are not insured, but the insurance company acknowledge it and not treat you as being under-insured.

Immediate benefits of insuring based on First Loss basis is cost. It is definitely cheaper then insuring the Full Value, but compensation is only up to the insured amount.

First loss policies are most commonly used as theft or burglary insurance to insure against events where a total loss is extremely rare (i.e., the burglary of all goods contained in a large store, where it is almost impossible to tuck away all goods in the warehouse).

First loss in fire insurance is also common, where an owner assume that if a fire breakout, it could be quickly put off before it spreads to other areas, so the damage to content is limited. However, if the fire destroys the whole property, the insured amount for content would only be limited to the first loss limit, and the insurer will suffer heavy losses.

The decision to insured under a Full Value Basis or First Loss basis will then depend on your budget and determination of the loss possible.