Fire Insurance: Types, Exclusions & Eligibility Criteria

fire insurance

A fire can destroy property or a business, which can lead to extensive damage. To obtain compensation for such losses, you can opt for fire insurance that covers your personal and real property. The property you want to insure can be residential, commercial, or industrial.

Going forward in this article, we will learn everything related to the fire insurance policy. So, let us begin!

What Is Fire Insurance?

Let us see the meaning of fire insurance. Fire insurance can be purchased as part of property insurance or as a separate policy. Provides compensation for the cost of replacing, repairing, or rebuilding a property damaged by fire.

Since the estimate of fire damage cannot be anticipated, this policy is issued with a fixed value offset as the upper limit of the property insurance. The actual damage or the maximum amount agreed in advance will be reimbursed as compensation when registering for fire insurance.

Types Of Fire Insurance Plans

To avoid confusion about the amount of damage, this policy contains certain types of clauses. These types give more clarity on the premium to be paid and the amount of damage to be paid without dispute. Entrepreneurs need to know the type of policy they need and if it is right for their business. Let’s look at some types of fire insurance.

fire insurance

1. Value Policy Fire Insurance Claim

If it is difficult to determine the value of the property or items at the time of use, a valued policy will be issued. For example, the value of painting, art, or jewellery is not constant every day of the year. In such cases, the estimated value is determined in advance by the insurance company and the policyholder at the time the insurance is purchased.

In the event of an unfortunate event, the default will be paid, no actual damage will be determined. The principle of compensation does not apply here, but attempts are made to compensate the insured person for the damage at a predetermined rate without getting into discussions or disputes at the time of the actual damage.

2. Specific Policy Fire Insurance Premium

Under this policy, the maximum amount to be paid is set in advance. In the event of an unfortunate event, the amount equal to the actual damage or the predetermined amount, whichever is less, will be paid. For example, by purchasing fire insurance with a certain value of Rs. 2 lakh, so the amount to be paid is 2 lakh rupees. However, if the loss is Rs 1.5 lakhs, the full amount of Rs 1.5 lakhs will be owed.

3. Average Policy Fire Insurance Information

The applicant often prefers that the sum insured be less than the value of the property. In such cases, the insurance company uses the “average clause” to penalize the insured for taking out a policy that is less than the property’s value.

For example, the valuation of your store and the products in the store is Rs. 20 lakh, but you get fire insurance at Rs. 10 lakh. In such a situation, if a fire in the shop causes the damage of Rs 20 lakh, the insurance company will pay you only Rs 10 lakh, depending on the clause of the average policy.

4. Floating Policy

If an entrepreneur has warehouses in different locations, he can opt for a floating policy. With the help of this uniform policy, all the goods in different warehouses can be insured together. Such an arrangement eliminates the need to purchase separate policies for each warehouse.

In addition, you can opt for an average clause if you want to reduce the premium. However, in the case of the average clause, the amount to be paid at the time of the damage is much less than the actual damage.

5. Consequential Damage Insurance

Fire damage is not the only damage an insured suffers after a fire breakdown. Your factory could lose critical machinery and the production line could be idle for weeks or months after the fire. Loss of production is a loss of business or profit.

Such compensation can be claimed as part of the indirect damage insurance. The company, in which continuous production is essential, must follow a policy of consequential losses to compensate for such losses.

6. Comprehensive Policy

Employers may want to protect their property against all kinds of mishaps such as fire, robbery, theft, explosion, earthquake, lightning, labour disturbances and other similar reasons. In such a case, the business owner must opt ​​for a comprehensive policy or an all-risk policy that can cover all possible causes of damage.

7. Replacement Policy

Loss of property due to fire makes it necessary to obtain a new property to resume business operations. The policy is available in two versions. With the first option, you replace lost items based on depreciated values. Alternatively, it makes sense to offset the actual costs of the property being replaced. When purchasing fire insurance, you need to understand the replacement insurance clause to receive a claim right at the time of the unfortunate event.

Importance Of Fire Insurance

fire insurance

Fire accidents are unexpected and not only cause enormous financial damage but also make it difficult to manage the consequences. As a business owner, you are always risk-prone and fire can immediately paralyze a flourishing business. Let’s understand fire insurance benefits:

  • Fire insurance provides comprehensive protection against damage caused by fire explosions caused by real or personal property.
  • Fire insurance covers property damage, for example, damage to office buildings, furniture, machines, inventory, etc. caused by a fire.
  • In addition to fire damage, fire insurance also covers damage caused by natural disasters, explosions, water tank explosions, etc.

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Features Of Fire Insurance

The following features are the features of a fire insurance policy, making it unique to others. Let us understand the characteristics that should not be ignored:

  • Deed of Trust: The policy is based on the premise of trust between the insurer and the insured. Both parties must disclose all the facts when initiating the policy.
  • Compensation Agreement: This is a compensation policy under which the insurer is liable for damage that has occurred. In the event of an undamaged fire, no liability insurance is offered.
  • Annual policy: The fire insurance policy is generally limited to one year, but can be extended depending on the conditions set out in the insurance policy.
  • Insurable interest: The policy is valid if the insured has an insurable interest in the insured property. In the event of loss, such interest may be charged. This is an advantage for the insured because the insured property is preserved and, in the event of destruction, there is a risk of loss.
  • Direct loss: If the cause of the loss or damage is fire, it can be claimed.
  • Personal right: In case of loss/damage due to unfortunate circumstances, the insured sum will be delivered to the person named in the insurance policy.
  • Personal Insurance Contract: The important function required by this policy is to be completely transparent. An insurer must know the behaviour of the insured. Otherwise, only the insured can transfer the policy with the consent of the insurer.

Also, an insurer has all the right to terminate the contract if ownership of the goods is transferred to a third party.

  • Property Description: When purchasing a fire insurance policy, it is imperative to properly document the property. This is essential because, according to the location specified in the insurance policy, claims will be settled at the insured location in the event of an unfortunate event. In case of change, you must notify the insurer to avoid further consequences.

Exclusions Of Fire Insurance Policy In India

Fire insurance provides cover for a lot of situations but there’s a list of exclusions of fire insurance company:

fire insurance

  • Fire insurance companies in India don’t cover the damage caused by nuclear hazards, nuclear waste or radioactivity.
  • There is no coverage for damage/loss of electrical machinery, short circuits, equipment, power leaks, etc.
  • There is no coverage for loss/damage, theft or costs caused directly or indirectly by terrorist activities that are not covered by the policy.
  • There is no coverage for damages caused by war, invasion, civil war, mutiny, riot, war situation, etc.
  • Not covered for bearing damage/loss due to temperature changes
  • Fire insurance claims example never covers loss or damage caused directly or indirectly by some of the natural disasters such as earthquakes, volcanoes, etc.
  • There is no coverage for lost profits, loss of delay or loss of market, consequential damage by fire insurance in India.

Eligibility Criteria For Purchasing Fire Insurance

If you wish to purchase fire insurance, the following criteria apply:

  • Any person/organization/institution/company that can or should protect your business from unforeseen calamity in the event of a fire.
  • Anyone who owns a building, furniture, household items, etc.
  • Retailers or Shopkeepers, Godown Holders.
  • Banks, financial, educational, research institutes, etc.
  • Service providers such as owners of hotels, clinics, accommodation, clinics, etc.
  • Production and industrial companies, transporters.

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