Fire Insurance

Is there any advantage in writing fire insurance policies on a term basis? Yes. A large majority of fire policies are written for terms of three or five years. Premium in most rating jurisdictions is first year and 85 percent if the additional term is less than a full year. Thus, the insurance premium for two years is 1.85 times the annual rate for each year thereafter, pro rata of 85 percent if the additional term is less than a full year. Thus, the insurance premium for two years is 1.85 times the annual rate for three years, 4.4 times. In jurisdictions still using the old term rule the insurance premium for the second year is 75 percent of the first year, the three year insurance premium is 2.5 times the annual and the five year premium is 4 times the annual.

List some of the property that may be written on a term basis. In most jurisdictions, all buildings and contents can be written for a term of not more than five years.  There is a reduction in the insurance rate for applications of the 100 percent coinsurance clause on the contents of a building without sprinklers.

Although the rules governing this insurance reduction are no the same in all rating jurisdictions, the general rule applying is 10 percent insurance reduction from the 80 percent coinsurance rate. Similarly, a insurance reduction of 5 percent is permitted for the use of the 90 percent clause. These reductions do not apply to building or contents of sprinklered risks, nor to risks of fire-resistive construction, which classes require the use, as a general rule, of not less than 90 percent coninsurance, without reduction from the 80 percent rate.  For the use of 100 percent is generally allowed off the 90 percent rate.