What is Fire Insurance?
Fire insurance is a legal contract between an insurance company and the policyholder which guarantees that any loss or damages caused to the policyholder’s property in a fire will be paid by the insurance company. Fire insurance provides coverage against incidents of accidental fire, lightning, explosion, etc.
Why is Fire Insurance Important?
Fire accidents are unexpected and cause enormous destruction not only in terms of finances but it becomes tougher to deal with the aftermath. Owning a business, one is always prone to risks and a fire eruption can instantly bring a flourishing business to a stalemate.
Let us understand why fire insurance is a wise choice. Having a fire insurance policy comes with a broad range of scope, which includes:
- A fire insurance policy provides comprehensive protection against any damage caused due to fire explosion, caused due to either movable or immovable property.
- A fire insurance policy encompasses damages to the properties, for instance, damage caused to an office building, furnishings, machinery, stock, etc. due to a fire-outbreak.
- Besides, fire-related perils, a fire insurance policy also encompasses damages caused due to any natural calamity, explosion, the bursting of the water tank, etc.
Scope of Fire Insurance: Case
After serving seven years in the corporate sector, Malini started her own fashion house, with a manpower of 25. Soon after her business picking up its pace, a sudden incident left her shell-shocked. A fire erupted at her neighborhood shop and half of the property was damaged, incurring huge financial damages. The shop owner hadn’t insured his property, hence he had to bear the entire loss by himself.
Malini, taking a lesson from this event, decided to purchase fire insurance to protect her fashion house from any unforeseen events like this. Initially, finance was a constraint for her and she had to purchase old machinery and furniture. Being skeptical about whether her fire insurance covers these expenses or not, she contacted the insurer. She breathed a sigh of relief when the insurer confirmed that the scope of fire insurance covers old machinery and furniture as well.
Types of Fire Insurance in India
On the premise of the necessities, the following types of fire insurance policy can be availed, which are:
- Specific Policy: Under this policy, for a certain property, a specified sum insured is determined and in case of any loss, the compensation will be provided for the loss provided it is less than the determined amount.
- Comprehensive Policy: This policy provides extensive coverage not only against fire-related perils but also provides coverage against any other perils, such as robbery, burglary, civil rampage, etc.
- Valued Policy: At the initiation of the policy, the value of a particular property is determined. On the premise of the value of the property, the insurance of the policy is decided wherein the insurer will pay the value in the case of destruction of property by fire.
- Floating Policy: This type of policy is best suited for owners who run a business of import and export. This policy will provide you with coverage securing your goods lying at various places. It is to be noted that the goods need to belong to the same individual under one sum assured and one premium covering all the perils related to the goods.
- Consequential Loss Policy: A fire-outbreak in a workplace like in a factory may disrupt the workforce that is production might go down but the fixed expenses continue at the same price. This policy essentially provides coverage for consequential loss or loss of profits. On the premise of loss of sales, the loss of gains is calculated.
- Replacement Policy: In this policy, the insurance provider assures compensation for the loss of the premise of the property’s market value. After contemplating the depreciating value o the property, the amount that is to be compensated is calculated. The compensation provided will be at the replacement price, which implies that the new asset will be of the price that has been lost. It is to be noted that there will not be any additional expense as the compensation provided will be on the new asset’s market price.
Characteristics of Fire Insurance
The following are the characteristics of a fire insurance policy, which makes it a unique product to others. Let us understand the characteristics, which should not be ignored:
- Covenant of Good Faith: The policy is on the premise of faith between the insurer and the insured. It is essential for both the parties to reveal all the facts at the time of policy initiation.
- Covenant of Indemnity: It is an indemnity policy wherein the insurer is liable to cover for the loss that occurred. In case of a fire-break with no loss, no insurance liability will be offered.
- One-year Policy: The term fire insurance policy is generally for a year but it can be renewed depending on the terms and conditions mentioned in the policy schedule.
- Insurable Interest: The policy is valid when the insured has an insurable interest in the insured property. In case a loss occurs, such interest may be required. This is beneficial to the insured by the survival of the insured property and under a situation of destruction may face a loss as well.
- Direct Loss: If the root cause of the loss or damage is fire, one may avail of this.
- Personal Right: In case of any loss/damage under any unfortunate circumstances, the insured amount will be provided to the person whose name is mentioned in the policy document.
- Personal Insurance Contract: The important feature this policy requires is being pellucid completely. An insurer needs to know the behaviour of the insured. Moreover, only the policyholder can transfer the policy with the consent of the insurer. Besides, an insurer has all the rights to terminate the policy on the grounds wherein the possession of goods is transferred to a third-party.
- Property Description: While buying a fire insurance policy it is imperative to give a proper account of the possession. This is essential because as per the location addressed in the document of the policy, the claims will be settled if in case any unfortunate event occurs at the insured place. In case if there is any change, it needs to be brought into the notice of the insurer to avoid further upshot.
Inclusions Under Fire Insurance in India
Covering a wide range of perils, it is often termed as Standard Fire and Special Perils Policy. In the below grid, let us have a look at the inclusion the policy offers:
Fire Insurance Perils
The policy provides coverage for any damage caused due to the fire. Besides, any damage caused due to natural heating, own fermentation or unconstrained burning is not included.
If any damage/loss occurs because of lighting, for instance, cracks in the roof/building area, etc. it will be covered.
Damage caused by a fire explosion is covered under this policy.
If any damage happens which leads to fire due to an aircraft, for instance, articles dropped by an aircraft, airborne devices etc. will be covered under the policy.
Terrorist Activity, Riots/Strike
Any harm to the protected property caused because of a strike, riot or any fear monger action, is secured by fire insurance.
Any damage to the insured property due to any natural calamity such as storm, tycoon, etc. is covered under the policy.
You will be covered for the destruction caused to your property due to a rockslide/landslide.
Bursting/Overflowing of the Water Tank
If the property is damaged due to bursting/overflowing of the water tank, it will be covered.
Setting fire to overgrown bushes/plants may end up damaging the property. This will be covered under the policy. Please note that the policy will not cover the destruction caused due to the forest fire.
Exclusions Under Fire Insurance Policy in India
In the below grid, are the exclusions under a fire insurance:
- No cover for damages caused due to nuclear perils, nuclear waste or radioactivity.
- No cover for any damage/loss to any of the electrical machines, short circuit, apparatus, leakage of electricity, etc.
- No cover for loss/damage theft or expense incurred directly or indirectly caused by any kind of terrorist activity are not covered by the policy.
- No cover for damage due to war, invasion, civil war, commotion, mutiny warlike situations, etc.
- No cover for the damage/loss to the stock due to change in temperature; loss or damage directly or indirectly by some of the natural disasters like earthquake, volcano etc.
- No coverage is provided under the loss of earning, loss of delay or market loss, consequential loss.
Eligibility Criteria to Buy Fire Insurance Policy
If you wish to buy a fire insurance policy, the following is the criteria:
- Any person/organisation/institution/firm that may endure or need to ensure his/her business from an unforeseen misfortune in case of a fire.
- Anyone who possesses a building, furniture, household articles and so on.
- Retailers or shopkeepers, godown keepers.
- Banks, financial, education, research institutes, and so on.
- Service suppliers including hotel owners, medical clinics, lodging, clinics and so on.
- Manufacturing and industrial firms, transporters.
Add-on Coverage in Fire Insurance
Upon the payment of an additional premium, the insured can benefit the following add-on coverage:
- Wreckage removal
- Forest fire
- Loss of rent
- Start-up cost
- Alternate accommodation
- Unconstrained burning
- Damage to stock due to change of temperature
- Leakage and contamination cover
- Architect, engineers, Surveyors consultation fee
- Cover for molten metal spillage
- Impact loss owing to insured’s own road/rail transit
Selecting Sum Insured for Fire Insurance
Sum insured is one important aspect of an insurance policy. It is of utmost importance to be much careful while choosing a sum insured.
The following things need to be kept in mind while deciding the sum insured for a fire insurance policy:
- Valuables, precious materials or antiques
- Plan and machinery, furniture or other important personal assets
Tips to File Fire Insurance Claim
Filing a claim for fire insurance is simple if approached in the correct direction. Below are steps to claim your fire insurance policy, which are:
- First things, in case of any unfortunate mishap wherein you need to file a claim inform the insurer at the earliest.
- Furnish a detailed account of damaged [properties along with an estimated cost for the equivalent.
- It is imperative to cooperate with the surveyors if they look forward to you for any kind of assistance or additional information.
- Help the surveyor in every manner possible. It might sound annoying but it is better to take a tour of the damaged premises. This will enable a quick settlement against the claim filed.
Documents Required to File Fire Insurance Claim
The following is the list of common documents, which will be required while filling any claim related to fire insurance:
- An authorised copy of the policy, which includes the schedule and clauses.
- The complete duly filled claim form.
- In case, if the incident is published a proof to substantiate the same such as a Newspaper proof.
- Records of previous claims, if any.
- Report by the fire brigade.
- Forensic report wherever is needed.
- A copy of the final investigation report.
In a Nutshell!
The truth is that if you own a business it is always vulnerable to risks despite the precautions you undertake or you use the technological advancements. It is better to take care of the possibilities. It is better to be safe than sorry.
What are you waiting for? Buy fire insurance today!
Fire insurance- FAQs
Despite all the precautions, you can’t predict a calamity. Hence, you need to be calm in case any such situation arises. In case of a fire, inform the local fire brigade who will help you to put out the fire. If there is any loss of another person’s property due to the fire or in an effort to douse it, the insurer shall compensate for the same.
Inform the insurer, cooperate with the supervisor at the time of loss assessment. You can also take photos of the loss if the surveyor takes a lot of time to arrive and shift all the unaffected assets to a safe place. Fill the claim form and submit it along with the documents supporting your claim. After the repair or replacement of damages, submit all the bills to the insurer.
Ans: Your building may get damaged due to fire or other perils and the losses will not be covered by a general insurance policy. For that, you’ll need a fire insurance that will cover the damages sustained by the building. Similarly, natural calamities also may wreak devastating losses, which can burn a hole in your pocket. Hence, to safeguard your property, you need fire insurance.
Ans: Yes, the insurance company will give you a pro-rated refund of premium. If there is any retention of premium or balance for a short period, it will be refunded.
Ans: No. The correct claim amount is decided based on the current market value of your property and the basic Sum Insured. The compensation that is to be offered, in case of a loss, will be decided on whether the property is sufficiently insured or not. If you choose an excessive amount, it will mean excessive premium, while in case the amount is adequate, you’ll get an amount is equal to the market value of the property. In both the cases, the offered claim amount will be the same.
Ans: Usually, general fire insurance doesn’t cover these items, unless discussed with the insurer while buying the policy. However, on special request and subject to valuation, these items can be covered under a policy.
Ans: A burglary insurance policy covers you against the risk of theft. However, the policy will cease if the house remains unoccupied beyond a defined period unless the insurance company has been informed beforehand. In such cases, you will be covered only if the insurer agrees to extend the cover even if the house is empty. This is why it is important to clear everything at the time of buying the plan.
Ans: There are various insurance plans offering coverage against risks such as fire, earthquakes, floods that cause damage to the building, unexpected breakdown of any machinery, damage to electronic equipment, workmen compensation, fidelity guarantee, cargo risks cover etc. You can select the Sum Insured for every category based on the insurance needs of the enterprise. A comprehensive insurance package also includes employer’s benefits schemes like group personal accident or group health insurance etc. which offers a complete financial safety.