WHAT IS FIRE INSURANCE?
Fire insurance is a contract under which the insurer in return for a consideration (premium) agrees to indemnify the insured for the financial loss which the latter may suffer due to destruction of or damage to property or goods, caused by fire, during a specified period. The contract specifies the maximum amount, agreed to by the parties at the time of the contract, which the insured can claim in case of loss. This amount is not, however, the measure of the loss. The loss can be ascertained only after the fire has occurred. The insurer is liable to make good the actual amount of loss not exceeding the maximum amount fixed under the policy. • A fire insurance policy typically has four different coverage areas. The dwelling portion refers directly to the home itself. The coverage for the dwelling should always be enough to adequately replace the home. Rebuilding expenses are often determined based on the actual square footage of the home in question. The portion referring to other structures includes the coverage of garages or sheds that are not part of the dwelling itself and are considered a separate area. • Personal property is considered a separate coverage area as well and includes the contents within the home that are not part of the dwelling itself, for example furniture, electronics, computer equipment, clothing and jewelry. Personal property items of considerable value should be specifically listed as part of the fire insurance policy, items that are not explicitly valued tend to be compensated with a “standard” amount. • The fourth coverage area relates to additional expenses that exceed the insured’s usual cost of living as a result of the fire damage. This can refer to the expenditures of temporary housing among other things, all incurred when forced to live away from your residence during the process of rebuilding or repairing. These expenses need to be documented in order to receive reimbursement later. Usually there is a limit set for additional expenses claimed.
WHAT ARE THE MAIN TYPES OF FIRE INSURANCE POLICIES?
o Specific Policy: The insurer is liable to pay a set amount lesser than the property’s real value. In this policy, the property’s actual value is not considered to determine the indemnity. The average clause, which requires the insured to bear the loss to some extent, does not play a role in this policy. In case the insurer inserts the clause, the policy will be known as an average policy.
o Comprehensive policy: This all-in-one policy indemnifies for loss arising out of fire, burglary, theft and third party risks. The policyholder may also get paid for the loss of profits incurred due to fire till the time the business remains shut.
o Valued policy: This policy is a departure from the standard contract of indemnity. The amount of indemnity is fixed and the actual loss is not taken into consideration.
o Floating policy: This policy is subject to the ‘average clause’. The extent of coverage expands to different properties belonging to the policyholder under the same contract and one premium.
o Replacement or Re-instatement policy: This policy is subject to the re-instatement clause, which requires the insurance company to pay for replacing the damaged property. So, instead of giving out cash, the insurer can re-instate the property as an alternative option.
WHAT RISKS ARE COVERED IN FIRE INSURANCE?
The Insurance Policy broadly covers losses due to:
Fire, lightning, explosion and implosion
Destruction or damage to the property insured by its own fermentation, natural heating or spontaneous combustion or its undergoing any heating or drying process cannot be treated as damage due to fire. For e.g., paints or chemicals in a factory undergoing heat treatment and consequently damaged by fire is not covered. Lightning may result in fire damage or other types of damage, such as a roof broken by a...