Running a business means putting money into premises, machinery, stock, equipment, and other assets that support your day-to-day work. If these assets are damaged by a fire or another insured event, the resulting loss can put pressure on your business finances. Fire insurance may provide financial protection against specified loss or damage, subject to the policy terms.
What Does Fire Insurance Cover?
A fire insurance policy may cover specified physical loss or damage arising from events such as fire, lightning, explosion or implosion, along with other insured perils, depending on the policy wording.
For a business, the insured property may include:
- Building: The premises used for business, where the building is covered.
- Plant and machinery: Machinery and equipment used for business operations, where covered.
- Stock: Goods, raw materials, or other stock, subject to the applicable terms.
- Contents: Furniture, fixtures, fittings, and other specified contents.
- Other insured assets: Property specifically listed or otherwise covered under the policy.
Remember that the property description, sum insured, insured perils, conditions, and exclusions all matter.
What Factors Affect the Cost of Fire Insurance?
The cost can depend on the value of the property being insured, how the premises are used, its location, construction, and the perils included in the policy.
| Factor | Why It Matters |
| Value of property | The value of the assets being insured affects the sum insured and can influence the premium |
| Use of premises | The nature of activities carried out at the premises can affect the risk assessment |
| Location | Location details may be considered when assessing the property |
| Construction | The building’s construction and occupancy can be relevant to the premium |
| Cover selected | The perils and extent of cover chosen can affect the cost |
How Do You Decide the Right Sum Insured?
The sum insured represents the amount for which an asset or property is insured. It should be based on the valuation method applicable to the policy.
Two commonly used approaches are market value and reinstatement value. Under market value, depreciation may be taken into account. Under reinstatement value, the amount can be linked to the cost of replacing the insured fixed asset, subject to the applicable conditions and the sum insured.
Before deciding the sum insured, check:
- The current value of the property and assets
- The valuation basis applicable to the policy
- Which assets are included
- Whether any asset-specific limits apply
- Whether the sum insured reflects the value you need to insure
What Should You Do After Fire Damage?
Once everyone is safe and the immediate situation is under control, follow the claim procedure specified in your policy.
You may need to:
- Inform the insurer about the loss as instructed in the policy.
- Take photographs or videos of the affected property where it is safe to do so.
- Keep records relating to the damaged assets.
- Provide the claim form and supporting documents requested by the insurer.
- Cooperate with any surveyor or loss assessor appointed to inspect the damage.
- Preserve damaged property where possible, unless leaving it in place creates a safety risk or you receive other instructions.
The documents and steps required can vary according to the policy and circumstances of the loss, so follow the instructions applicable to your cover.
How Can Fire Insurance Support Rebuilding?
If your policy covers an asset on a reinstatement value basis, the amount payable may be linked to the cost of replacing or rebuilding that asset, subject to the sum insured and policy terms. This is different from market value, where depreciation may be taken into account.
Property insurance can cover different types of property depending on the policy. When insuring a building or other fixed asset, check which valuation method applies. The cost of replacing an asset after a fire may be different from its value before the damage.
Conclusion
For a small business, fire damage can mean dealing with repairs or replacing property, machinery, stock, and other assets. Fire insurance may help with specified losses, depending on the cover and policy terms. Before buying a policy, check what you want to insure, the sum insured, the events covered, and the claim requirements. Also check how the insured property will be valued if you need to repair or replace it after a loss.
