What is a declaration fire insurance policy and its advantages?
- Author :
- TATA AIG Team
- Published on :
- 2 min read
Fire insurance is critical for managing risks emerging from fire accidents. It is an important financial tool that helps you protect your property against the devastating effects of unforeseen fire outbreaks.
When it comes to purchasing a fire insurance policy, it is crucial to understand its concepts, terms and conditions. It is an important step towards ensuring better coverage of your property.
One such important concept is known as the Declaration Policy.
In this article, we are going to discuss what is a declaration policy in fire insurance, what are its features and benefits, and why you should consider opting for it.
What Exactly is a Declaration Policy in Fire Insurance?
A normal fire insurance policy offers common coverage for the insured property. On the other hand, a fire declaration policy allows the policyholder to declare the risk and value of each insured entity separately, offering better coverage and protection.
A fire declaration policy, a key type in fire insurance, involves policyholders providing details and declaring the value and associated risks of each item they want to insure.
By the terms declaration and details, we mean the name and address of the insured entity, detailed property description, current market value, and so on.
This comprehensive information helps the policyholder to decide an optimum coverage, premium, sum insured, etc.
Declaration Policy in Fire Insurance Example
Let’s discuss an example to understand a fire declaration policy thoroughly.
Suppose you want to purchase fire insurance for your newly established small café/restaurant. You opt for a fire declaration policy in order to have separate coverage for individual entities. Here is what the policy breakdown looks like:
Declaration of fire insurance for inventory, electronic appliances, and furniture:
Declared Value: ₹6,00,000
Required Coverage: Fire, flood, theft, etc.
Declared Value: ₹8,00,000
Required Coverage: Electric damage, explosions, fire, etc.
Declared Value: ₹6,00,000
Required Coverage: Earthquake, fire, flood, vandalism, theft, etc.
With respect to the above declaration, your fire declaration policy terms will look like the following:
Policy Coverage: Your policy will offer the requested coverage as per the declarations you have made for each insured item.
Total Declared Value: The total declared value will be the sum of all individual declared values, i.e. ₹20,00,000.
Premium and Deductibles: The premiums and deductibles of your policy will be decided on the basis of your declared values and risks. Moreover, you can adjust the declared values as per the fluctuations in the market.
Important Features of Declaration Policy in Fire Insurance
Now that you have understood what a declaration policy is in fire insurance, it is time to discuss some of its important features.
Higher Flexibility: The most prominent feature of a declaration policy in fire insurance is that it offers a higher level of flexibility to the policyholders. In simple words, it allows you to adjust your coverage by taking into account the market values and level of risk your insured entities are subjected to.
For example, suppose you have a fire declaration policy for your business in which you have declared multiple machines. Now, you want to add a new machine and remove an outdated one. In this case, you can adjust your coverage by making the necessary additions and eliminations.
Thorough Coverage: A fire declaration policy offers customised coverage for each insured item on the basis of its distinct characteristics and values. This ensures that you have the best possible financial protection to cover the losses and damages without affecting your business operations.
Calculation of Premiums: The premiums of a fire declaration policy are calculated after considering the individual value and risk of each insured object.
Modifications in Policy: During the policy tenure, if any changes occur in the insured object, it is your responsibility to make the necessary modifications by informing your insurance provider. Such changes include the addition/elimination of insured items, changes in associated values or risks, and so on.
Claims Settlement: A declaration policy provides the insurance provider with a detailed record of the insured property that outlines its value, type of coverage, risks, sum insured, and other relevant information. It helps them make efficient claims settlement decisions. Further, it makes sure the policyholders move through the claims settlement process smoothly and in a streamlined manner.
Things to Consider When Purchasing a Declaration Policy in Fire Insurance
If you are planning to choose a declaration policy in fire insurance, make sure to follow the tips below:
Always Provide Detailed and Accurate Information: At the time of making declarations, make sure to provide the most accurate and honest information about the property you are planning to insure. You should provide detailed information about property type, ownership, occupancy, construction, potential risks, etc. You should also provide any important documentation, such as fire and safety certificates of your property, to the insurance provider.
Check Policy Terms Carefully: Before finalising a fire declaration policy, make sure to go through its terms and conditions thoroughly. It is extremely important to understand its benefits and limitations in order to make an informed decision. When doing so, also pay attention to the penalties and legal consequences due to non-compliance with any policy term.
Regularly Updates: It is very important to update any changes to your insured items in your fire insurance policy in a timely manner. Failing to do so can result in issues during claims settlement.
Don’t Shy Away from Professional Assistance: Purchasing a fire or any other SME insurance is a critical step taken towards its safety. Hence, this decision should be made very mindfully. If you are not able to determine the required coverage or are facing any other challenges, it is advisable to seek assistance from a professional insurance expert. This helps you get the best policy for your valuable business.
Should I Buy a Declaration Policy or a Floater Declaration Policy in Fire Insurance?
At the time of purchasing a declaration policy in fire insurance, you might come across another similar option known as the floater declaration policy. Let’s see how it is different from a regular fire declaration policy.
A floater declaration policy allows you to get coverage for a group of items that share similar characteristics and risks under a single limit. On the other hand, a declaration policy allows you to get separate coverage for individual items with varying insured limits.
If you are looking forward to insuring a group of similar entities, then a floater fire declaration policy is an ideal choice for you. It is both easier to manage and cost-effective.
Fire outbreaks can be devastating for businesses. A single explosion or fire accident has the potential to push any business down to the ground. This is the reason why fire insurance is deemed the most important SME insurance.
By protecting the insured property against fire and related perils, a fire insurance plan allows business owners to handle the risk mindfully and ensures the proper functioning of their business.
To make your fire insurance policy more comprehensive, you can opt for a fire declaration policy. It helps you financially secure your insured valuables by providing detailed declarations for each at the time of buying a policy.
Are declaration fire insurance policies expensive?
The premiums of declaration fire insurance policies are calculated on the basis of multiple parameters, including the declared value of insured items, type of coverage, deductibles and the risk associated with each insured entity. Overall, if the declared value or associated risk of insured items is higher, the premiums will also be higher and vice-versa.
How can I estimate the premiums of a fire declaration policy?
The premiums of a fire declaration policy are calculated on the basis of the declared value of the insured entities, along with the type of risks associated with them. You can easily calculate the premium cost of your declaration policy by taking into account these factors.
Disclaimer / TnC
Your policy is subjected to terms and conditions & inclusions and exclusions mentioned in your policy wording. Please go through the documents carefully.