What is the first loss?

In the finances, the term "first loss" concerns the form of partial insurance in which the property is insured for the amount much less than the full value of the property. This is often used in theft insurance or burglary, where there are very few options that all items within the assets would be stolen at any given moment. For example, a large retail store would usually get the first loss of policy instead of getting full insurance for everything the business is worth. This business decision is based on the logical assumption that if there was a burglary, not everything in the store would be accepted. It would only be lost up to a certain amount, and this would apply to the first insurance policy for loss. The amount is calculated on the basis of what is expected to be the greatest loss in one case of burglary.

obtaining the principle of the first loss would also mean lower payments, so it can be the Zdraa business decision. However, if there was a large fire, flood or other unforeseen catastrophic event that would destroy the entire trade, then it would be at the disadvantage of the owner, because according to the actual loss they would not receive a complete insurance payment; Instead, they would only receive the amount they insured in the first loss policy. If the policy only applies to up to $ 300,000 in the US (USD), it is the amount of insurance they would obtain, although the actual value lost in the fire or flood is, say, $ 3 million or higher.

Given its nature, it is easy to see that the first loss of insurance can be credited when used on larger properties, but for other types of insurance is hardly recommended, for example for vehicle insurance. In the latter, it is always better to obtain full replacement insurance and be fully protected in case the car stole or damaging in the accident. Partial insurance may not be the best choice for Properties in high -risk areash, such as those that are susceptible to high crime or fire.

In the voluntary acceptance of the first loss policy, the insured person agrees that the average clause cannot be used in their case. The average clause dictates that a reasonable payment is made in accordance with the actual suffered damage or loss. The insured person also explicitly agrees that he / she does not take any measures to penalize the insurance company for insufficient insurance of the property, even if it causes damage that is much greater than the amount set out in the first insurance contract.