Overview of Pollution Insurance

Pollution insurance is an insurance policy that is designed to protect companies from losses resulted from environmental damage that they caused. Originally reserved for oil companies and radioactive waste depositories, these policies have have recently become much more widespread. Pollution insurance policies have many common features of other insurance policies, but because there is a lack of standards, it makes it hard to compare the policies to see which one is the best.

Pollution Insurance Basics

The primary purpose of any insurance policy is to protect the policy-holding companies from losses related to pollution. When an environmental disaster occurs, companies are faced with two major expenses - the clean-up costs and the liability costs. The former include the costs of cleaning up the damage and making the affected area safe again. The later involves the expenses that result from paying liability costs to the workers and local residents and general for whatever damage they suffer during the environmental disaster. The companies would also be required to pay fines to the Environmental Protection Agency. Together, those costs can bankrupt many companies. This is why all pollution insurance policies cover both clean-up costs and liabilities.

Some pollution insurance policies also provide transaction insurance coverage. This coverage is important when a company buys a property that contain environmental hazards. For example, a real estate developer may be interested in buying an old factory in order to redevelop it into a residential loft building. Before it can start construction, it would have to clean up whatever chemical waste accumulated while the factory was in operation, otherwise, no one would be able to live their safely. Depending on the age of the property and the extent of the pollution, the clean-up costs can get quite high, especially if some unexpected environmental hazards are discovered during the clean-up.

Pollution insurance can also include coverage against environmental hazards created by another company. For example, it a company's warehouses is located next to a chemical waste depository, the company may want to take out insurance to cover clean-up costs and the loss of profit that occur if the chemicals spill into the warehouses.

What Pollution Insurance Offers

When it comes to duration, pollution insurance has many options. Companies can buy policy insurance for anywhere between a year and ten years. Companies can get their coverage extended, but they usually have to do it before the term ends. Otherwise, it automatically expires and the companies would have to reapply all over again. Pollution insurance policies are usually claims-based, so companies must file claims in order to get coverage, and the coverage doesn't kick in until the claims are processed.

Pollution insurance tends to have comparatively high premiums. In many cases, companies can reduce their premiums by taking on policies that encompasses more than one building/facility. Some pollution insurance policies require companies to pay off the entire premium before they become eligible for coverage.

Like other insurance policies, pollution insurance policies include caps on how much coverage the insurance will provide. The caps are usually decided on case-by-case basis. The insurance company looks at both current hazards and potential hazards. It also examines how those hazards will affect the surrounding community, on both a short and long term basis.