First-Loss Policy

Definition of 'First-Loss Policy'


A type of property insurance policy that provides only partial insurance. In the event of a claim, the policyholder agrees to accept an amount less than the full value of damaged, destroyed or stolen items/property. In return, the insurer agrees to not penalize the policyholder for under-insuring their goods or property.

First-loss policies are most commonly used in the case of theft or burglary insurance to insure against events where a total loss is extremely rare (i.e. the burglary of all goods contained in a large store). In a first-loss policy claim event, the policyholder does not seek compensation for losses below the first-loss level. Premiums are calculated proportionately - meaning they are not based on the full value of total goods or property.

Investopedia explains 'First-Loss Policy'


Let's consider an example of what a first-loss policy would cover. If a store owner held $2.5 million worth of goods in his/her store but only assumed that the most s/he could lose at any one time due to theft or burglary would be approximately $50,000, s/he might obtain a first-loss policy for that amount. In the event that the store was burglarized and the owner lost more than $125,000 worth of stock s/he would only be compensated for the $50,000 worth of loss as stated under the first-loss policy.


Filed Under:

comments powered by Disqus
Hot Definitions
  1. XW

    A symbol used to signify that a security is trading ex-warrant. XW is one of many alphabetic qualifiers that act as a shorthand to tell investors key information about a specific security in a stock quote. These qualifiers should not be confused with ticker symbols, some of which, like qualifiers, are just one or two letters.
  2. Quanto Swap

    A swap with varying combinations of interest rate, currency and equity swap features, where payments are based on the movement of two different countries' interest rates. This is also referred to as a differential or "diff" swap.
  3. Genuine Progress Indicator - GPI

    A metric used to measure the economic growth of a country. It is often considered as a replacement to the more well known gross domestic product (GDP) economic indicator. The GPI indicator takes everything the GDP uses into account, but also adds other figures that represent the cost of the negative effects related to economic activity (such as the cost of crime, cost of ozone depletion and cost of resource depletion, among others).
  4. Accelerated Share Repurchase - ASR

    A specific method by which corporations can repurchase outstanding shares of their stock. The accelerated share repurchase (ASR) is usually accomplished by the corporation purchasing shares of its stock from an investment bank. The investment bank borrows the shares from clients or share lenders and sells them to the company.
  5. Microeconomic Pricing Model

    A model of the way prices are set within a market for a given good. According to this model, prices are set based on the balance of supply and demand in the market. In general, profit incentives are said to resemble an "invisible hand" that guides competing participants to an equilibrium price. The demand curve in this model is determined by consumers attempting to maximize their utility, given their budget.
  6. Centralized Market

    A financial market structure that consists of having all orders routed to one central exchange with no other competing market. The quoted prices of the various securities listed on the exchange represent the only price that is available to investors seeking to buy or sell the specific asset.
Trading Center