Fire Insurance
Fire Insurance
What Is Fire Insurance?
The term fire insurance refers to a form of property insurance that covers damage and losses caused by fire. Most policies come with some form of fire protection, but homeowners may be able to purchase additional coverage in case their property is lost or damaged because of fire. Purchasing additional fire coverage helps to cover the cost of replacement, repair, or reconstruction of property above the limit set by the property insurance policy. Fire insurance policies typically contain general exclusions such as war, nuclear risks, and similar perils.
KEY TAKEAWAYS
- Fire insurance is property insurance that provides additional coverage for loss or damage to a structure damaged or destroyed in a fire.
- Fire insurance may be capped at a rate that is less than the cost of the losses accrued, necessitating a separate fire insurance policy.
- The policy pays the policyholder back on either a replacement-cost basis or an actual cash value basis for damages.
- Although some homeowners insurance policies include fire coverage, they may not be extensive enough for some homeowners.
How Fire Insurance Works
Homeowners insurance provides policyholders with coverage against loss and/or damage to their homes and possessions, also referred to as insured property. This is a blanket term used to describe both the interior and exterior of the home as well as any assets that are kept on the property itself. Policies may also cover injuries someone sustains while on the property. If you have a mortgage, there's a very good chance that your lender won't advance your loan if your property isn't covered. Even if it isn't a requirement, it's a good idea to protect yourself. There are additional forms of coverage you can purchase including fire insurance.
Fire insurance covers a policyholder against fire loss or damage from a number of sources. These include fires brought about by electricity, such as faulty wiring and gas explosions, as well as those caused by lightning and natural disasters. A burst and overflowing water tank or pipes may also be covered by the policy.
Most policies provide coverage regardless of whether the fire originates from inside or outside of the home. The limit of coverage depends on the cause of the fire. The policy reimburses the policyholder on either a replacement-cost basis or an actual cash value (ACV) basis for damages.
If the home is considered a total loss, the insurance company may actually reimburse the home's current market value. The insurance typically provides a market value compensation for lost possessions, with the total payout capped based on the home's overall value. If, for example, a policy insures a house for $350,000, the contents are usually covered for at least 50% to 70% of the policy value—or a range of $175,000 to $245,000. Many policies limit how much reimbursement covers luxury items such as paintings, jewelry, gold, and fur coats.
Special Considerations
A policyholder should check the home's value each year to determine if there is a need to increase the coverage amount. A policyholder cannot get insurance for more than a home's actual value. Insurance companies may offer stand-alone policies for rare, expensive, and irreplaceable items that are otherwise not covered in standard fire insurance.
Some standard homeowners insurance policies include coverage for fire, but they may not be extensive enough for some homeowners. If an insurance policy excludes coverage for fire damage, a homeowner may need to purchase separate fire insurance—especially if the property contains valuable items that cannot be covered with standard coverage. The insurance company’s liability is limited by the policy value and not by the extent of damage or loss sustained by the property owner.
Fire insurance provides extra coverage to offset any additional costs to replace or repair property that surpasses the limit set by homeowners insurance.
Fire insurance policies provide payment for the loss of use of the property as a result of a fire or for additional living expenses necessitated by uninhabitable conditions, as well as damage to personal property and nearby structures. Homeowners should document the property and its contents to simplify the assessment of items damaged or lost in the event of a fire.
A fire insurance policy includes additional coverage against smoke or water damage due to a fire and is usually effective for one year. Fire insurance policies on the verge of expiration are usually renewable by the homeowner, under the same terms as the original policy.
7 Kinds of Fire
Insurance Policies
There are a number of fire insurance policies to suit different interests. A number of factors are considered before deciding about the kinds of policies to be taken.
1.
The type of risk involved.
2.
The nature of the property to be insured.
3.
The contents of the property.
4.
Occupancy hazards.
5.
Exposure hazards.
ADVERTISEMENTS:
6.
The time element.
The following kinds of policies are generally issued for fire
insurance:
1. Valued Policy:
In
this policy the value of the subject-matter is agreed upon at the time of
taking up the policy. The insurer agrees to pay a pre-determined amount if the
subject-matter is destroyed or damaged by fire. The principle of indemnity is
not applicable to this policy. The agreed value may be more or less than the
market value at the time of loss. These policies are generally issued for those
goods or property whose value cannot be determined after their loss or damage.
These goods may include works of art, jewellery, paintings, etc.
2. Specific Policy:
Under
this policy the risk is insured for a specific sum. In case of loss of
property, the insurer will pay the loss if it is less than the specified
amount. It can be explained with an example: An insurance policy is taken for
Rs. 50,000 and the value of the property is Rs. 80,000. If the property worth
Rs. 40,000 is lost, the insured will get the whole amount of loss. If the loss
is up to Rs. 50,000, it will be paid in full. In case loss exceeds Rs. 50,000,
say it is Rs. 60,000, the indemnity will only be upto the amount insured i.e.
Rs. 50,000. Under this policy the insured is not punished for getting a policy
for lesser sum. The actual value of property is not taken into consideration.
3. Average Policy:
If the ‘average clause’ is applicable to a policy, it is called Average Policy. Average clause is added to penalise the insured for taking up a policy for a lesser sum than the value of the property. The compensation payable is proportionately reduced if the value of the policy is less than the value of the property.
Suppose
a person takes up a fire insurance policy of Rs. 20,000 and the value of the
property is Rs. 30,000. If there is a loss of property worth Rs. 50,000, the
underwriter pays compensation of Rs. 10,000 (20,000/30,000 x 15,000) and not
Rs. 15,000. It discourages the insured to get under-valued policy.
4. Floating Policy:
A
floating policy is taken up to cover the risk of goods lying at different
places. The goods should belong to the same person and one policy will cover
the risk of all these goods. This policy is useful to those businessmen who are
engaged in import and export of goods and the goods lie in warehouses at
different places. The premium charged is generally the average of the premium
that would have been paid, if specific policies would have been taken for all
these goods. Average clause always applies to these policies.
5. Comprehensive Policy:
A
policy may be taken up to cover up all types of risks, including fire. A policy
may be issued to cover risk like fire, explosion, lightening, burglary, riots,
labour disturbances etc. This is called a comprehensive policy or all risk
policy.
6. Consequential Loss Policy:
Fire may dislocate work in the factory. Production may go down while the fixed expenses continue at the same rate. A policy may be taken up to cover up consequential loss or loss of profits. The loss of profits is calculated on the basis of loss of sales. A separate policy may be taken up for standing charges also.
7. Replacement Policy:
The underwriter
provides compensation on the basis of market price of the property. The amount
of compensation is calculated after taking into account the amount of
depreciation. A replacement policy provides that compensation will be according
to the replacement price. The new asset should be similar to the one which has
been lost. The amount of compensation will depend upon the market price of the
new assets so that it is replaced without additional cost to the insured.
What is Fire Insurance?
A fire insurance could be bought as a part of property insurance or as a
stand-alone policy. It offers compensation for the costs incurred in the
replacement, repair or reconstruction of a property that was damaged due to
fire. Since the estimation of loss from fire is unpredictable, this policy is
issued with fixed value compensation as an upper limit set by the property
insurance policy. The actual loss or the maximum amount agreed beforehand is
paid as compensation when you file a claim for fire insurance.
Types of Fire Insurance Plans
To avoid ambiguity for the claim amount, certain types of clauses are
included in this policy. Such types give more clarity on premium payable and
claim amount payable without any scope of a dispute. Businessmen should be
clear about the type of policy they need and whether it suits his/her business
operations. Let us look at some of the types of fire insurance.
a) Valued Policy: When it is difficult to ascertain
the value of the property or articles at the time of claim, a valued policy is
issued. For example, the value of paint or art or jewellery is not constant
during all the days of the year. For such cases, the estimated value is fixed
in advance by the insurance company and policyholder, at the time of taking the
insurance. In case of an unfortunate event, the predetermined value is paid,
and actual loss is not assessed. Here the principle of indemnity is not
applied, but the attempt is made to compensate the losses to the insured at a
predetermined rate without entering into debates or disputes at the time of
actual loss.
b) Specific Policy: Under this policy, the maximum
amount payable is fixed in advance. In case of an unfortunate event, the amount
equivalent to the actual loss or prefixed amount, whichever is less, is
paid. For example, if a fire insurance policy is taken with a specific
value of Rs. 2 lakh, then in case the loss due to fire is worth Rs.3 lakh, the
amount payable is Rs. 2 lakh. However, if the loss is worth Rs. 1.5 lakh, the
full amount of Rs. 1.5 lakh will be payable.
c) Average Policy: Many a times, the applicant
prefers the insured amount to be less than the value of the property. In such
cases, the insurance company imposes the “average clause” to penalise the
insured for taking up a policy less than the value of the property. For
example, the valuation of your shop and goods inside the shop is Rs. 20 lakh,
but you are taking a fire insurance of Rs. 10 lakh. In such a
situation, if a fire in the shop leads to damage worth Rs. 20 lakh, the
insurance company will pay you Rs. 10 lakh only, under the average policy
clause.
d) Floating Policy: If a businessman has warehouses
at different locations, s/he may opt for a floating policy. With the help of
this single policy, all the goods lying in different warehouses can be insured
together. Such an arrangement eliminates the need for buying separate policies
for every warehouse. Moreover, you can opt for an average clause if you want to
reduce the premium. However, at the time of loss, the amount payable is
substantially lower than actual loss, in case of the average clause.
e) Consequential Loss Policy: The loss due to fire is not the
only loss an insured person faces after fire break. Your factory may lose
important machinery and the production line could go down for several
weeks or months after the fire. The loss of production is a loss of business or
profit. Such indemnity can be claimed under consequential loss policy. The
business in which continuous production is the essence must take consequential
loss policy to make good of such losses.
f) Comprehensive Policy: It can happen that business
owners want to cover their properties against all possible mishaps like fire,
burglary, theft, explosion, earthquake, lightning, labour unrest, and similar
other reasons. In such a case, the business owner should go for comprehensive
policy or all risk policy, which can take care of all possible causes of loss.
g) Replacement Policy: The loss of property due to fire
raises the need to get a new property to restart business operations.
The policy comes with two variants. In the first option, it makes good
of lost property on depreciated value bases. Alternatively, it makes good to
compensate for the actual cost of the replaced property. While taking the fire
insurance, you must understand the replacement policy clause to get appropriate
claim at the time of the unfortunate event.
Coverage under Fire Insurance
Policy
It covers all the losses arising out of the accidental fire, subject to
terms and conditions of the fire policy which is limited by the policy value
and not by the extent of damage sustained by the property owner. In general,
the following losses are covered:
- Actual
loss of goods due to fire
- Additional
living expenses due to damage to personal property
- Loss
to adjacent building or property due to fire in the insured building
- Compensation
paid to fire fighters
- Fire
triggered by electricity
- Overflowing
of a water tank or pipes
Claim Process
If you happen to encounter an eventuality because of fire, you need to
make claims under fire insurance. To avoid rejection and fasten the claim
process, you should be clear of the procedure and the documents needed.
- Immediately
inform the insurance provider either online
or by calling on their 24/7 toll-free number
- Also,
contact the fire brigade and the police
- Insurance
company will appoint a surveyor for scrutiny of the situation
- Submit
the duly filled in claim form and other proofs and photographs
- If
approved, the claim can be settled from 15-30 days, as the time duration
is different for the insurance companies
Exclusions in Fire Insurance
Policy
Not all situations and cases are covered by fire insurance. Some
situations are excluded.
- Fire
caused by war, nuclear risks, riot or earthquake
- Planned
or intentional fire by the enemy or public authority for whatsoever
reasons
- Underground
fire
- Loss
because of theft during or after the fire
- Malicious
or hostile, human-made causes of fire
This list does not include all the exclusions as
they vary for different providers
Important Aspects
The concept of a fire insurance is based on three essential conditions which
should be met before you can file a claim
- There
must be an actual fire in the insured premises
- The
fire must be accidental and beyond the reasonable control of the
policyholder
- Loss
or damage must be due to burning triggered by accidental fire. The damage
by heat or fire, if not accidental, won’t be considered as loss due to
fire. Hence, insurance is not applicable in such instances
Advantages of Buying Fire
Insurance
Considering the amount that the insurance company can pay for the losses
and save you from further problems, you should not ignore and underestimate
fire insurance. Let us look at some of the advantages of buying this policy:
- Homeowners
can get back the cost of damage to the structure of the house
- It
also covers the cost of replacement of the items in the house, such as AC,
television, computer, etc.
- In
case of factory and office, the insurance can cover the cost of damaged
stocks
- The
insurance can cover the cost of repair of machines, if they are damaged
Also Read : What is Commercial Insurance – Coverage, Claim &
Exclusions
FAQs
Q1. How will my insurance claim be
cross-checked?
The insurance provider may ask for documented proof for the claim as
well as inspect the insured property to ascertain the damage. If both these
evidence are aligned, your claim is likely to get approved right away. Property
owners are advised to document the property and its content as this doing this
will simplify the assessment process of damaged goods during the fire.
Q2. Do I need a fire insurance if I have a
comprehensive insurance policy?
No, if you have a comprehensive policy for your property, it is likely
to also cover the damage caused due to fire.
Q3. Do I need to have fire insurance apart
from a homeowner’s insurance?
No, if
you have a homeowner’s insurance, you would also be getting cover for damage
caused by natural calamities or fire. However, if the fire insurance is
excluded from your standard homeowner’s insurance policy, then make sure you
purchase it separately if your property contains valuable items that are not
covered under this policy.
- Comprehensive policy:
Fire insurance is called a comprehensive policy when it covers all other kinds of risks like riots, arson, loot, civil commotion, wars, strikes, accidents and others in single insurance. - Blanket policy:
A blanket policy is that fire insurance policy in which a single policy is used to insure properties at one or different locations against the risk of fire. Sometimes an organization or a person can have properties at various locations and this type of insurance is useful fore covering the risk generated by fire for these all properties. - Consequential loss policy:
A consequential loss policy is meant for compensating the loss not directly b fire but incidental to the fire event. Loss of fire is also covered but addition to that other kinds of losses due to expenses on salary, interest, inflation or hiring of temporary premises are also covered. - Valued policy:
A fire insurance policy the value of property is fixed at the time of inspection is called valued policy. So in case of loss of property by fire, the insurance company pays the full of policy amount at the time of taking policy whether the property is fully damaged or not. - Valuable fire insurance policy:
Under this policy, the value of claim is determined at the actual market price of the damaged property only after the destruction of the policy. The value is not fixed earlier as in valued policy. - Specific fire insurance policy:
Under this policy, if the damage is less than the insured amount, insurance company compensates up to the mount damaged. If the damage is more than the insured mount insurance company compensates only equal to insured amount or identify loss to the extent of specific amount. - Floating fire insurance policy:
if a single fire insurance policy is conducted for different property located at different place, then that type of policy is called floating fire insurance policy. For the convenience of client this policy is undertaken. An entrepreneur may have some of his goods and other at other storable places. Insuring them under separate policy can be very chaotic. That’s why floating fie insurance policy is done to offer financial security that can occur at different places through single policy. - Average policy:
It can be defined s the policy in which losses born by both insurance and owner of insurance property. It is calculated under the following formulae.
Claim= (insured amount / value of property) * actual loss - Adjustable fire insurance policy:
According to the changes of stock the insured amount is also changed. The premium is calculated according to the insured amount and the insured amount changed. Under this policy, the insured amount is based on the value of existing stock in the beginning and late exited according to information received on the changes of stock. For example, if the client has stock worth rs. 100000 then insurance for the same amount is made. Later on if the same stock is worth rs. 80000 or rs. 110000 than the insured amount may increase or decrease as the situation may be. The information about stock receive from the insured is the base for limiting the liability of the insurance policy. - Reinstatement policy:
Under this policy, the insurance company undertakes to replace the property damaged by fire. In this policy, the actual loss is no indemnified in monetary terms but the insured goods are replaced. - Declaration policy:
This policy is issued for the maximum value of stock to be insured. At the beginning of the contract, three-fourths of the premium payable is charged from the insured in advance. Every month the policyholder is required to declare the value of present stock. In case of any loss by fire, the compensation is made on the basis of declared value. At the end of the insured period, based on the values stock declared, the total of premium payable is worked out as average. - Excess policy:
An excess policy is supplementary fire insurance policy, which is purchased to cover additional risks beyond the coverage of original first loss policy. The kind of fire policy is purchased by such merchants whose stock fluctuates from time to time. In such a case, first loss policy is purchased for minimum stock value and additionally an excess policy is purchased for an anticipated increase in the total value of stock.
Comments
Post a Comment