| Applications.
The Fire policy can cover commercial and industrial buildings, their
contents, or both. The contents generally include fixed assets,
such as machinery, furniture, leasehold improvements, computer equipment,
and current assets such as inventories of raw and packaging materials,
production in process, and finished goods.
Buildings.
Insured at the estimated cost of rebuilding, less depreciation (1%
P.A. for noncombustible buildings, 2% for combustible).
Removable Fixed Assets - Machinery, furniture, equipment, etc.
There are two options as to how these can be insured on the Fire
policy:
At book value; i.e., the general ledger balance of each asset account,
less any depreciation. In the event of a loss, the lower of the
Actual Cash Value or the net Book Value (purchase price less depreciation)
will be the adjusted value. If at the time of a claim the total
net Book Value of the general account as per the ledger is found
to be greater than the insured value, coinsurance will be applied
as a global percentage of the shortfall on all assets claimed for.
This method of valuation has as its main advantage the possibility
of insuring without drawing up a list, but the combined effect of
devaluation and the application of depreciation can very rapidly
prove this valuation method as unsuitable.
At value per list of assets. A list of assets is drawn up, in which
a description of each item, or group of items is valued, at Actual
Cash Value (or replacement value, if that is the case). In the event
of a claim, losses are adjusted based on the lesser between the
insured value and the Actual Cash Value at the time of the claim.
The insured must be able to prove ownership of the claimed asset.
Inventories.
These are insured at their book value, at landed or manufactured
cost. It is possible to negotiate with INS for a policy on a reporting
basis, where a provisional premium is paid in advance based on estimated
inventory peaks, and then it is adjusted at the policy anniversary
date following monthly inventory reports submitted to INS by the
insured.
Renters.
Unless specified in the rental contract, renters need not insure
the buildings they occupy, but it behooves the renter to cover the
premises for fire, in case of a conflagration caused by the renter
or his employees.
Leasehold Improvements.
Insured at their actual cost per books. A description of the exact
nature of the improvements must be provided.
Coverages.
This insurance is of the "Named Peril" type. Coverage
is for the specific events as defined in the clauses of the policy,
and subject to certain rules and limitations. The coverages available
are:
- Fire and lightning (basic coverage.)
- "Comprehensive". Damage caused by civil insurrection,
strikes, vandalism, wind, hurricane, falling objects, explosion,
and smoke.
- Floods and landslides.
- Earthquakes and tremors and resulting fire. Volcanic eruption
and other natural disasters.
- Loss of benefits. This part of the commercial Fire policy provides
for lost income to the owner of a property which is rendered unusable
by an insured event.
- Spillage and water damage.
- Loss of income. This insurance is an endorsement to the
Fire policy, and insures for the loss derived from an occurrence
insured on that policy. The coverage is generally determined based
on the percentage of gross profits method (American method). The
process to obtain business interruption insurance is complicated,
and takes several weeks to get coverage in position.
- Window and glass damage.
Premiums.
Computed as a percentage of the insured values. The rates
depend on the nature of the business, the perceived degree of hazard,
the type of construction and the condition of the building, and
the location. Rates usually fall between 0.5% and 2% p.a. for ABCD
coverages. To the premium add 13% for Sales Tax.
Disclaimer: This document is intended as a summary of most
relevant points of the insurance policy; as such, it does not contain
every provision stated therein.
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