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Distinguish between Life Insurance and Fire Insurance

  • Author :
  • TATA AIG Team
  • Published on :
  • 15/01/2024
  • 2 min read

Life is full of uncertainties. No one can predict what might happen tomorrow. It is, therefore, essential to protect yourself, your loved ones and your valuables against unforeseen mishaps and risks.

There are various insurance products to secure yourself financially and tackle life’s uncertainties. Life insurance and fire insurance are two such insurance policies. While life insurance insures human life, fire insurance protects against losses caused by fire.

In this article, we will delve into the meanings of life insurance and fire insurance and the differences between both.

What is Life Insurance?

Life insurance is an agreement between an individual and an insurance company under which the latter promises to pay a predetermined sum to the beneficiary upon the policyholder’s death in exchange for regular premiums.

So, when you buy a life insurance policy, you are required to pay premiums for a specific term. In return, the insurance provider pays a death benefit to your loved ones in case of an eventuality. The payout can help replace the lost income, pay off debts or fulfil your family’s long-term financial needs. In some life insurance plans, you get a maturity benefit on surviving the policy term.

There are several types of life insurance policies such as term life insurance, unit-linked insurance plan (ULIP), endowment insurance, whole life insurance, etc. Each policy has different premium structures, features and benefits. You can pick the one that best suits your needs and financial goals.

Insurance providers determine your policy’s premium according to the coverage amount you desire and your age, lifestyle and health condition.

What is Fire Insurance?

Fire insurance falls under the category of property insurance. It provides coverage against damages or losses caused by fire. Electrical malfunctions, natural and manmade disasters, etc., can lead to fire and cause significant losses to your property and assets.

Fire insurance can help you deal with such mishaps. It offers financial protection for a range of assets like buildings, inventory, equipment or personal property. So, when you buy fire insurance, you can avail of compensation for costs incurred in replacing, repairing or reconstructing the property or assets damaged in a fire in exchange for a premium. A fire insurance policy may also include losses caused by water, smoke or other related perils.

Fire insurance can be of several types such as valued policy, average policy, comprehensive policy, consequential loss policy, etc,. each providing different coverage levels.

The cost of fire insurance is determined by the insurance providers using factors such as the coverage level you desire, property or asset value, location, construction materials used and fire safety measures.

Difference Between Life Insurance and Fire Insurance

Here’s how you can differentiate between life insurance and fire insurance:

Point of Difference Life Insurance  Fire Insurance 
Meaning  A life insurance policy is an agreement between an individual and an insurance provider where the latter promises to pay a lump sum or regular payments upon the death of the policyholder  Fire insurance policy is an agreement between the policyholder and insurance company where the latter promises to compensate for the loss caused by fire or explosion 
Subject matter  The subject matter in life insurance is human life  The subject matter in fire insurance is physical property or asset 
Purpose  The purpose of life insurance is to provide financial security to the policyholder’s loved ones  The purpose of fire insurance is to protect property owners from losses caused by fire-related incidents 
Element  Life insurance involves the element of both protection and investment  Fire insurance involves the element of protection 
Premium  The cost of life insurance premium is based on the policyholder’s age, lifestyle, health condition, desired sum insured, etc.  The cost of fire insurance premiums is based on the property value, location, fire safety measures, construction materials used, etc. 
Time  The duration of life insurance usually ranges between 5-30 years or whole life  The duration of fire insurance is usually one year 
Contract  The contract of life insurance is based on the principle of utmost good faith  The contract of fire insurance is a contract of indemnity 
Principle of Indemnity  The principle of indemnity is not applicable as loss of life cannot be measured  The principle of indemnity is applicable as the loss can be measured 
Medical examination  A medical examination is necessary before buying a life insurance policy  A medical examination is not required before taking a fire insurance policy 
Insurable interest Requires the presence of insurable interest at the time of buying a life insurance policy  Requires the presence of insurable interest at the time of buying a fire insurance policy as well as at the time of damage or loss 
Risk  Risk is unavoidable since the sum insured has to be paid when the policyholder dies or reaches maturity  Risk is not guaranteed since the insured property or asset may or may not catch fire 

Wrapping Up

Fire insurance and life insurance are effective instruments to protect yourself against unforeseen mishaps and financial losses. Both policies are designed to serve different purposes.

Life insurance ensures the financial security of your loved ones and helps fulfil your long-term financial goals. On the other hand, fire insurance helps you deal with financial losses and damages caused by fire. The calculation of the premium of both policies is based on different parameters.

Based on the above discussion, you can distinguish between life insurance and fire insurance. Understanding the difference between both types of insurance policies can help you make an informed choice regarding your financial security.

Tata AIG’s Fire and Burglary insurance plans provide flexible coverage options for all business sizes. You can pick the most suitable SME insurance policy to safeguard your assets against unforeseen risks.

FAQS

What is the purpose of life insurance and fire insurance?

The purpose of life insurance is to provide financial security to the loved ones of the policyholder in case of an eventuality. On the other hand, fire insurance aims to provide compensation to property owners for losses resulting from fire or explosion.

How are life insurance and fire insurance premiums decided?

The premium in life insurance is decided by factoring in the policyholder’s age, lifestyle, health condition and desired sum insured.

On the other hand, a fire insurance premium depends on the value of the assets or property, location, desired coverage, construction materials used, etc. The adoption of fire safety measures may also be used to decide fire insurance premiums.

Can you make three distinctions between life insurance and fire insurance?

Here are the three distinctions between life insurance and fire insurance:

The subject matter in life insurance is human life. On the other hand, physical property or assets is the subject matter in fire insurance

Life insurance aims to secure the financial future of the policyholder’s loved ones. Fire insurance aims to protect property owners from losses resulting from fire.

The cost of life insurance premium is based on the policyholder’s age, lifestyle, health condition, desired sum insured, etc. However, the cost of fire insurance premiums is based on the property value, location, fire safety measures, construction materials used, etc.

**What is covered under fire insurance? **

Fire insurance covers the following:

Bush fire, jungle fire and forest fire

Explosion and implosion

Landslides and rockslides

Lightening

Impact damage

Riots, strikes and malicious damages

Missile testing operations

Leakage from automatic sprinkler installations

Overflowing or bursting of pipes, apparatus or water tanks

Volcanic eruptions and earthquakes

Typhoons, storms, cyclones, hurricanes, floods, tsunamis, etc.

Theft within seven days of occurrence and proximately occurred due to the above events.

How can I reduce the premium of my fire and burglary insurance?

Here are a few tips to reduce your fire and burglary insurance premium:

Installing fire alarms or smoke detectors or taking other fire safety measures.

Comparing different plans and selecting the plan that offers maximum coverage for an affordable premium.

Furnishing accurate information about the value of property or assets at the time of policy purchase.

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Disclaimer / TnC

Your policy is subjected to terms and conditions & inclusions and exclusions mentioned in your policy wording. Please go through the documents carefully.

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