What happens if my business, factory or warehouse catches fire? Does my fire insurance cover machines, stock, and other contents in the building?
Business Losses from Fire
Many business owners are concerned on cases of factory fires causing significant losses to the business owner.
Examples of business losses in Malaysia due to fire
- Factory in Juru catches fire (thestar)
- Plastic factory loses over RM15mil to enormous blaze (thestar)
Insurance is a basic tool for corporate risk transfer with general insurance tools and group insurance covering the risk of company assets (i.e. company building, machines, employees.) When running business, unforeseen events are unavoidable. The best you can do is minimizing your losses when mishaps occur.
Wealth building is not easy and is a time-consuming process. Thus it is important for wealth protection planning.
What is Fire Insurance
Fire insurance covers damage or loss to a property because of fire. It is a specific form of insurance to property insurance, and it covers the cost of replacement
and repair or reconstruction. Fire insurance policies cover damage to the property, and may also cover damage to nearby structures, personal property and loss of property usage if damages occur rendering the property unusable.
A fire insurance policy typically includes coverage against smoke or water damage due to a fire. A fire insurance policy is usually setup for one year. The policyholder may renew and review the policy according to its terms.
Owners should document the property and its contents, which makes it easier to determine the value of items damaged or lost due to a fire. A fire insurance policy may contain exclusions based on the cause of the fire, such as fires caused by war or riot.
Tip: Get a professional advisor to check on your fire insurance policy
Most fire insurance policies in Malaysia include fire coverage on property building, but not on others. This coverage is purchased separately, particularly if the property has valuable items excluded from coverage. The insurance company’s liability is limited by the policy value and not by the extent of damage or loss sustained by the property owner.
Fire Insurance Policy Coverage
Fire insurance covers a policyholder against fire loss or damage brought about by ignition of fire, electricity, lightning or explosion of gas, natural disasters, and bursting and overflowing of a water tank or pipes.
Most policies cover a property regardless of whether the fire originates from within the property or from outside the property. Coverage limits are dependent on the cause of the fire. The policy reimburses the policyholder on a replacement-cost basis in the event the property is lost, or on an actual cash value basis for damages.
If the property is considered a total loss, the insurance company may reimburse the owner for the current market value or limited to the sum covered for the reconstruction on the building.
The contents or stocks of the property building are only covered if it is specifically insured in the policy.
Fire insurance coverage options
- Buildings: dwellings, factories, offices, shopping complexes
- Stock: raw materials, finished goods, packaging materials
- Contents: plant and machinery, furniture, fittings and fixtures, office equipment and tools, plans and documents
All the above are tangible assets belonging to the insured or held in trust or for which the insured is responsible. These assets are normally covered under material damage insurance. When a loss occurs, the earning power of the insured faces interruption. This earning income lost can be protected by a Consequential Loss Insurance.
Coverage Assessment and Review
A policyholder should review his property and fire insurance every year to decide if there is a need to increase coverage. You can set coverage limits using factors such as the value of the property reconstruction and its contents.
Do note that a policy may offer lower coverage limits for certain items including luxury items such as jewelry, artwork and other assets whereby you may need to get additional coverage.
Q: Are machines placed in the suppliers’ factory covered by fire insurance?
Fire insurance at your supplier’s location is covered if the fire insurance policy covers the contents which is held in trust by the insured.
Share and discuss
What questions do you have on fire insurance for your business, factory or warehouse?