Fire Insurance Policies in India-A Financial Compensation for Fire Victims

Fire insurance is a contract in which the insurer agrees, in exchange for a payment (premium), to compensate the insured for any financial loss caused by fire to property or goods during a specific period.

The parties to the contract agree on a maximum amount (written in the contract) the insured can claim in a loss. The insurance company has to pay back the actual amount of the loss set by the policy.

A fire insurance policy can not be given to someone else without the insurer’s permission because the insured must have an insurable interest in the property at the time of contracting and at the time of loss.

Definition

Fire insurance is “the insurance contracts against loss by or related to fire or other events usually covered by fire insurance policies.”

The fire insurance covers the loss and damages incurred due to the fire. The insurance specifies the maximum amount the insured can claim in the loss caused due to fire, but this amount is not the measure of the loss.

Features of fire insurance

1. It is a contract for indemnity and a good faith agreement.
2. Most fire insurance policies are only good for a single year.
3. The insurance contract is in a document called a “fire policy.”
4. A fire policy is only good if the person who bought it has an insurable interest in the property it covers.
5. If more than one policy covers the same property, each insurer has the right to share the money paid out by the others.
6. A fire insurance policy could not pay anything if the policyholder caused the fire. In this case, the policyholder could get charged with a crime.
7. Most fire insurance policies have a clause that says the insurer is not responsible if the fire was caused by a riot, a civil disturbance, a war, or an explosion.

Benefits of fire insurance

• It protects the home, share, furniture, business buildings, and other things. Fire insurance covers the cost of replacing homes and other things damaged or destroyed by a fire.
• The insurance helps a homeowner. It tells how much damage to the building will cost. It gives prices for replacements or repairs of TVs, computers, and air coolers that broke because of the fire.
• The business can benefit from fire insurance in the following ways:
  • It pays for the price of the destroyed shares in the fire.
  • It gives the employees death benefits if they die in a fire.
  • It tells you how much it will cost to fix or replace the machines if they break because of a fire.
  • It pays for the employee’s medical bills if they get hurt in a fire.
• It is necessary to keep your property or home safe from fire, especially if you know the chance of a fire is high.
• A fire insurance policy protects against damage caused by a fire in two ways.
  • After the fire is out, one pays out the amount of money equal to the actual amount of the home or business.
  • The other way is to add up the costs of replacing the property or home, which in this case means fixing it up and restocking it. It’s bad enough when something happens that makes the house fall apart, but it’s even worse if there is no insurance to help you get back to your normal life.

Fire insurance types

Valued policy

As the name suggests, the property is insured before the policy starts. If the insured suffers a loss, the insurer will pay a fixed amount of compensation, no matter how much money the insured lost. The claim amount could be less than or more than the property’s market value, and it won’t include any improvements made to the property.

Valuable policy

It is an exception to the rule above. In this case, the value of the insured property is determined at the damage time, and the claim is paid based on the property’s market value at the time of damage.

Specific policy

In this policy, a specific amount is not the same as the property’s market value and is for a specific amount of time for a particular property. The money paid out won’t be more than what the policy covers.

Average policy

It’s the policy where the insured doesn’t take out an insurance policy that covers the entire property, and the loss is split between the insured person and the insurance company.

Floating policy

In this type, a single policy covers an insured’s two or more properties at different places. The insured pays a single premium, which is more convenient than buying multiple policies.

Adjustable policy

Since the value of stocks can change, it can be difficult for the insured to figure out how much insurance coverage to buy. In this case, an “adjustable policy” in which the insurance amount and premium are first based on the stock’s current value and then change based on the stock’s value, which is regularly reported by the insured. The premium goes up or down in a pro rata way.

Declaration policy

Unlike above, the insured buys an insurance policy for the stock’s maximum value and regularly tells the Insurance Company how the stock’s value has changed. The insured pays 75 percent of the premium upfront, and the rest depends on how much the premium is calculated to be after one year based on the average value the insured declared in that year.

Excess policy

This policy is for people whose stock prices keep on fluctuating. In this case, the insured buys two policies:

1. First Loss Policy to cover the minimum value of the stock
2. Excess policy to cover the value of the stock above the minimum.

The stock’s minimum value is based on its past worth, and the insured tells the insurer every month how much more it is worth than the minimum value. In this case, the premium is not very high.

Reinstatement policy

If a fire damages the insured property, the insurance company replaces or fixes it instead of giving money.

Comprehensive policy

It’s the one that covers losses from not just fire but also theft, war, riots, strikes, and so on. The premium for this kind of insurance is very high, but it protects the insured against risks.

Consequential loss

The policy covers the fire loss and the loss caused by the fire. A “consequential loss” is a loss in profit, salary, or inflation that the insured has to deal with because of the fire.

What does fire insurance cover?

The fire insurance covers:

1. risks caused by fire;
2. risks aren’t caused by fire but covered by fire insurance contracts

So, you can look at fire insurance from two points of view:

1. Ordinary fire insurance and
2. Fire insurance covers a wide range of things.

Risk covered by fire insurance

The fire policy has to list the risks that could cause losses; if a loss happens, the insurance company will only cover these risks. Most fire insurance covers the following risks:

• Fire: It does not cover loss, destruction, or damage to the property caused by the property’s spontaneous fermentation, stopping, heating, or drying. Also, it doesn’t cover things that are burned by order of a public authority.
• Damage to aircraft: It covers any loss caused by the aerial devices, including damage to aircraft and items they drop. It doesn’t cover losses caused by pressure waves, though.
• Lightning: Sometimes, lightning can start a fire or cause other damage to the insured property.
• Explosion/Implosion: Explosion caused by a difference in temperature between the inside of a building and the outside air.
• Riots, strikes, and damage done on purpose: This type of insurance pays for property damage caused by strikes by workers, riots by the public, or damage done on purpose by a person.
• Storm, cyclone, typhoon, tempest, hurricane, tornado, flood, and inundation: Any damage done by these natural events to insured property is also under the fire insurance policy.
• The Fire Insurance Policy also protects against water tanks, equipment, and pipes that burst or overflow. Tests of missiles can cause property damage, which is also covered by a Fire Insurance policy.
• Automatic sprinkler installations leakage: It covers damage to property caused by sprinklers that don’t work right, but it doesn’t cover damage that occurs due to sprinkler fixation or during the renovation of buildings.

Risk not covered under the fire insurance

There are some risks for which the insurance company won’t pay out in case of a loss. These include:

• Loss, damage, wear and tear to precious stones and metals, art, maps, stamps, checks, accounts, books, rare documents, etc.
• Loss, destruction, or damage caused by riots, civil unrest, revolutions, war, aggression, internal emergencies, storms, cyclones, etc
• Forest or jungle fires start on their own.
• The chemicals caused the fire to start on its own.

Who is eligible to buy a fire insurance policy?

• Any person, organisation, institution, or business may need to protect their business from an unplanned event.
• Everyone who owns a house, furniture, household items, etc
• Retailers or godown keepers
• Banks, institutions for finance, education, research, etc
• Service providers, hotel owners, medical clinics, clinics, etc.
• Transporters and companies that make and sell goods.

Fire insurance claim procedure

1. Information to the insurance company: If a fire causes damage or loss, the policyholder should inform the insurance company in writing an estimated amount of loss.
2. Survey report: If the loss amount is small (up to Rs. 20,000), the insurance company may send an officer to look at the damage and decide how to pay, based on the claim form and the officer’s report. But when there is a big loss, a Government-licensed independent surveyor is asked to report on the loss.

   In general, the survey report would include:

   • Size of the loss.
   • If there is any underinsurance
   • Information about the salvage and its value
   • Information about costs.
   • Compliance with the policy’s conditions and warranties
   • Information about other insurance policies on the same property and division of loss between co-insurers
3. Claim form: The person who owns the policy will fill out the claim form and include the following information:
   • The Insured’s name and address
   • The date of the loss, the time, and the place where the fire began
   • Cause of fire.
   • Specifics about the damaged property, such as a description, etc
   • Information about other insurance policies on the same property, including the name of the insurer, the policy number, and the amount of coverage
   • Fire Brigade report details.
   • File an F.I.R. at the nearest police station to find out if anyone else is responsible.
4. Settlement of claim: Based on the claim form and the survey report, a decision is made about whether or not to settle the loss.

Conclusion

Fire insurance is a policy between the insured and the insurance company, in which the insurance company is responsible for paying for the loss the insured incurred due to fire.

The fire policy is called standard fire and special perils policy as it doesn’t just cover losses or damages caused by fire but covers losses or damages caused by things like lightning, storms, strikes, damaged aircraft, etc.

Even though these risks are covered, there are always ways to prevent them. For the Indian economy to grow, every business should insure its assets. If the price of stocks changes significantly over a year, they should be covered by a declaration fire insurance policy. The agreed bank clause could be added to protect the interests of the financial institutions.

About Author

Aanchal Dhuria

I am Aanchal Dhuria. I have done LLB from the department of laws, Punjab University, and an LL.M from UILS, Panjab University, wherein I have learnt research and writing skills. I have also got several research papers published. After post-graduation, I have been preparing for the judiciary, and I believe I have a good hold on all subjects of the judiciary. Presently, I have got myself enrolled for Ph.D. at Panjab university Chandigarh.

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