What are Fire Insurance Perils?
In insurance terms, “perils” refer to the specific risks or events that are covered under a policy.
For a fire insurance policy, perils include incidents like fire, explosion, floods, and riots that can cause damage to insured property. Any risk that is not listed under covered perils or is specifically excluded in the policy will not be compensated.
Understanding these perils helps businesses clearly identify what risks are protected and what require additional coverage.
What Does Fire Insurance Cover?
A Standard Fire and Special Perils Policy typically provides coverage for:
- Building: Physical structure of the insured premises
- Contents: Furniture, fixtures, and office equipment
- Machinery: Plant and machinery used in operations
- Stock: Raw materials, finished goods, and inventory
In addition to these, businesses can opt for add-ons to extend coverage for specific risks such as earthquakes, spoilage, or business interruption.
Detailed List of Fire Insurance Perils (With Examples)
The SFSP insurance policy generally provides coverage for the following perils:
1. Fire
Damage caused by accidental fire is covered. However, losses due to natural heating or fermentation are excluded.
2. Explosion / Implosion
Damage due to explosion or implosion is covered. Example: Boiler explosion damaged factory premises.
3. Lightning
Losses caused by lightning, such as structural damage to buildings or electrical systems, are covered.
4. Aircraft Damage
Damage caused by aircraft or objects dropped from it is covered.
5. Storm, Cyclone, Flood, and Other Natural Calamities
This includes damage caused by storms, floods, cyclones, hurricanes, tornadoes, and typhoons. Example: Flood damage to stock in a warehouse.
6. Riot, Strike, and Malicious Damage
Losses due to riots, strikes, or malicious acts are covered.
7. Impact Damage
Damage caused by impact from vehicles or animals belonging to third parties is covered. Example: A truck hitting a warehouse wall.
8. Subsidence and Landslide
Damage caused by land subsidence or landslide is covered, except when caused by poor construction.
9. Bursting or Overflowing of Water Tanks and Pipes
Losses caused due to bursting pipes or water tanks are covered.
10. Leakage from Automatic Sprinkler Installations
Damage caused by leakage from sprinkler systems is included.
11. Missile Testing Operations
Damage due to missile testing operations is covered.
12. Bush Fire
Damage caused by bushfire is covered, but forest fire is generally excluded.
Additional Perils Covered
- Contamination or pollution resulting from insured perils
- Any damage resulting from the above-mentioned perils
Additional Coverages
The policy also includes certain additional benefits, such as:
- Surveyor and consulting engineer fees up to a specified limit
- Debris removal expenses
- Coverage for machinery is temporarily removed for repair or maintenance
What is NOT Covered Under Fire Insurance? (Exclusions)
While the policy offers wide coverage, certain exclusions apply:
- Excess amount as defined in the policy
- War, invasion, or civil unrest
- Nuclear risks
- Loss due to negligence or intentional acts
- Electrical or mechanical breakdown (unless caused by fire)
- Loss of market, delay, or indirect losses
- Earthquake and volcanic eruption (unless added separately)
Properties That Are Not Covered
The policy does not cover certain types of property such as:
- Precious stones, bullion, and works of art
- Documents, manuscripts, and securities
- Cash, stamps, and business records
- Stock in cold storage is affected due to the temperature change
- Electrical equipment was damaged due to internal faults
Standard Fire and Special Perils: Add-Ons
Businesses can enhance coverage by opting for add-ons such as:
Additional Perils
- Earthquake
- Spontaneous combustion
- Forest fire
- Terrorism cover
- Spoilage due to power failure
Additional Expenses
- Architect and surveyor fees
- Rent loss
- Debris removal
- Start-up expenses
- Alternative accommodation costs
SFSP: Sum Insured
The sum insured under this policy can be determined based on:
- Depreciation value of the property
- Replacement cost basis
For better protection, replacement value is recommended. The sum insured should be adequate to cover full reinstatement costs.
Adjustments can also be made during policy purchase to account for inflation, cost increases, or a reduction in risk exposure.
The Final Words
A Standard Fire and Special Perils Policy is an essential risk management tool for businesses and property owners. It provides protection against multiple risks beyond fire, ensuring financial stability in case of unexpected events.
Understanding the covered perils and exclusions helps businesses make informed decisions and avoid surprises during claims. Since every business has unique risks, it is always advisable to consult an expert before choosing the right coverage
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