A first loss limit is a form of cover where protection is bought not up to the full value of the property, but up to a set amount – the largest loss reasonably expected from a single event – and the under-insurance proportion is not applied. It can be justified when property is spread across several locations and one event will never affect all of it, but it is not suitable for value concentrated at a single address.

When this answer applies to your situation

  • Equipment or stock is spread across many sites or vehicles all over Latvia.
  • Full value insurance looks disproportionately expensive against the real single-event risk.
  • It is hard to keep accurate property schedules for many locations.

What can change the answer

  • Whether the policy really states that under-insurance is not applied – that is the core of this form of cover.
  • How correctly the largest probable loss has been assessed (one location, one event).
  • Accumulation risk: whether an event affecting several locations at once is still possible.
  • The insurer's requirement to declare the total value – it still has to be stated honestly.

What to check in the policy or quote

  • The clause on not applying the proportion (under-insurance)
  • The basis for the limit against the largest single-location value
  • Whether the limit applies per event or as an annual aggregate
  • Cover for property away from the listed addresses (in transit, on sites)

The typical mistake

Using a first loss limit as a way to "insure one production plant more cheaply". Where value is concentrated at a single address, one fire can affect all of it – and the limit turns out to be too small by definition.

Example

A situation typical in practice (generalised example, not a specific client)

A typical situation: a service company has tools and equipment at 30 sites with a total value of EUR 800,000, but never more than EUR 60,000 in one place. A first loss limit of EUR 80,000 with the correct clause can be more rational than a full sum insured policy.

Related content

Sources and basis

This answer is based on Kristaps Račko's practice as a broker; it is not individual insurance advice. General regulatory context: Apdrošināšanas un pārapdrošināšanas izplatīšanas likums, the Latvian Insurance and Reinsurance Distribution Law (likumi.lv); supervision of brokers – the Bank of Latvia register.

Author: Kristaps Račko, insurance broker (partner at SIA EURORISK) Published: Last reviewed:

This is not individual insurance advice; actual cover always depends on the chosen insurer's wording and the special conditions of the policy.