Fire insurance provides cover for the losses and unexpected financial expenses that you may face after a fire. Fires can be caused by a wide range of unforeseeable circumstances. A natural disaster may lead to a fire, or a man-made accident could trigger one. Whatever the cause may be, there’s no denying that when it’s not controlled right away, a fire could cause massive loss of life, property, and goods. This is why a fire insurance policy becomes necessary.
Fire insurance is a contract where the insurer agrees to take on the financial risks associated with a possible fire, on your behalf. So, in case of any loss of property, goods or even life on account of a fire, your insurer will bear the financial losses that arise.
They will compensate you financially for these expenses and losses, up to the sum specified in the policy. And in return for transferring the risk to your insurer, you will have to pay a premium to them, as is the case with all kinds of insurance. This sums up the fundamentals of what fire insurance is.
You may know that fire insurance provides cover for losses arising from fires. But there’s more to this. A fire can be caused by various triggers, and not all of these perils are covered by fire insurance.
Let’s take a closer look at the common contingencies or events that a standard fire insurance policy typically covers.
The exact list of perils will, of course, vary slightly based on the policy you choose. But typically, these contingencies are covered by fire insurance.
A fire can damage almost every kind of assets and goods but not all these may be covered under a fire insurance policy. Although the list of inclusions will vary from one policy to another, here is a broad overview of the losses that are typically covered.
This should give you a good idea of what’s covered under a regular fire insurance policy. However, before you buy a fire insurance plan, you need to check the exact scope of coverage, so you are not in for a shock later.
Just like it’s important to know the inclusions, it’s also essential to know what is excluded from a fire insurance policy. Again, this will change from one fire insurance plan to another, but broadly speaking, here is a list of the common exclusions.
If you’ve decided to get a fire insurance policy, you need to also be aware of the types of plans you can choose from. Here is a preview of the types of fire insurance plans currently available in the insurance market.
A valued policy is typically issued for goods and items like artwork, antiques, machinery, etc. For these items, the exact value of the goods cannot be determined in case of a loss or damage. So, the insurer agrees to compensate you a specific sum of money in case of loss or damage to these goods. This fixed sum is not related to the actual value of the loss.
This kind of a fire insurance policy has a special ‘average clause.’ This clause is typically inserted to discourage people from keeping their property underinsured. Here, if the policy cover is less than the value of the property insured, the insurance provider will only pay out pro rata benefits in case of a loss.
For instance, say your property is valued at Rs. 50,000, but you have purchased a policy with a cover of just Rs. 40,000. Now, in case of a fire-related loss of Rs. 15,000, if you raise a claim on a policy with the ‘average clause,’ your insurer will only pay you Rs. 12,000.
This is calculated as follows:
Claim payout is (Actual loss x Sum insured) ÷ Value of the asset
In the above example the payout is (Rs. 15,000 x Rs. 40,000) ÷ Rs. 50,000 = Rs. 12,000
As the name indicates, this kind of a fire insurance policy covers risk up to a specified, predetermined sum of money. In case of any fire-related loss, the insurer will cover the risk up to the specified sum. Here, since there is no ‘average clause,’ you will not be penalised for being underinsured.
So, say you have purchased a specific policy with a cover of Rs. 80,000. In this case, here’s how claims will be paid out —
When you think of the goods covered by a fire insurance plan, you may typically think of them as being located in the same place. However, for people in the business of trade, imports and exports, they may have inventory located at various places. A floating fire insurance policy can insure them all.
A comprehensive policy, as the name indicates, offers wide-ranging coverage for a variety of contingencies like fire, theft, burglary, third party risks, explosion, lightning damages and more.
If you’re on the fence about whether or not a fire insurance policy is needed, you’re not alone. This is a common dilemma, but here’s a quick overview of the categories of people who can typically benefit from a fire insurance plan.
A fire insurance plan can be very beneficial, even if you do not fall under the above-mentioned categories. So, if you have the budget for it, it is always a good idea to be adequately insured. But before you purchase a fire insurance policy, make sure you thoroughly understand what’s covered and what’s not.
Fire insurance coverage typically includes goods or property damaged by the actual fire and by the water used to extinguish the fire. Additionally, these plans may also cover the cost of repairing or restoring any adjacent property that has to be pulled down by the fire brigade to keep the fire from spreading. Also, any goods broken or damaged while being removed from the property on fire will be covered.
A fire insurance plan typically covers fires due to perils like lightning strikes, an explosion or an implosion, riots, strikes and malicious damage (RSMD), or other natural calamities like storms, typhoons, floods, hurricanes, etc.
Fire insurance essentially protects you from the financial implications of a fire. Your property, goods and belongings may be lost or damaged in a fire, and the cost of repairing or replacing them can be steep and of course, unplanned. With a fire insurance plan in your kitty, however, you need not worry about these financial outlays, because your insurer will take on the risk and compensate you adequately.