How Are Fire Insurance Premiums Calculated?
When buying a fire insurance policy, especially for businesses such as factories or godowns, several things influence the premium. The main elements that affect the calculation are listed below:
- Value of the Insured Property
The total value of the property or assets insured is a major factor in premium calculation. The higher the value of the building, machinery, or goods, the higher the premium because the insurance company must cover bigger possible losses.
- Location of the Property
Location is an important factor in fire insurance premium calculations. In case the business is in a place in which disasters like wildfires, floods or earthquakes happen regularly, the risk factor is increased and premiums are higher. When the location has poor fire safety or is far from fire departments, the premium can also rise because of the extra response time in an emergency.
- Construction Material
The materials that you use to build your building affect your fire insurance premium. Properties constructed of fire-resistant materials such as steel or concrete have lower premiums. In contrast, a property built with wood or other flammable materials is considered high-risk and attracts higher premiums.
- Fire safety measures
Insurance companies reward businesses that have taken precautions to prevent a fire. Having a sprinkler system, fire alarms, and extinguishers can lower the premium. These safety measures lower the likelihood of substantial fire damage to the business and allow it to be much less risky to insure.
- Nature of business
Your fire insurance premium is also determined by the nature of your business. Businesses that handle combustible or hazardous substances like chemical substances or flammable fluids are at high risk. Consequently, these businesses will typically pay higher premiums than those that do not handle such materials.
- Claim history
If a business has a history of frequent insurance claims, the insurance company may consider it a high-risk entity. The premium rates will increase because of this. Alternatively, businesses with no prior claims might be eligible for discounts or reduced premium rates.
- Deductibles
The total amount the insurance policyholder agrees to pay out-of-pocket prior to the insurance kicks in is called a deductible. A higher deductible lowers your premium but means you'll pay more in case of a claim.
- Policy Duration
The premium also depends on the length of the insurance policy. Longer-term policies may have discounts, and short-term may have slightly higher premium rates.
Conclusion
You need fire insurance to protect your business from disasters. How the premium for fire insurance is calculated will help you select the ideal coverage for your business. Factors like property value, location, construction materials, fire safety measures, and claim history affect the cost of your premium.
If you run an SME, check out the ICICI Bharat Sookshma Udyam Suraksha policy. It offers comprehensive coverage with a high sum insured to protect your business from fire and related risks so you can recover and return to work quickly.