Features and Benefits of Fire Insurance

  • Author :
  • TATA AIG Team
  • Published on :
  • 05/02/2024
  • 2 min read

Fires are a common occurrence these days, and they bring with them a sense of the devastation that they may cause to your life, property, automobile, and business. In order to deal with this, your sole financial option is fire insurance.

However, there is often a confusion on the nature and benefits of fire insurance. Therefore, let us discuss the type, characteristics, and advantages of fire insurance.

Types of Fire Insurance Policy

The nature and scope of fire insurance can be understood by looking at its types in detail. Here are the various types of fire insurance plans:

Standard Fire Policy: This basic fire insurance policy covers property damage and loss because of fire and other specified perils. You can choose the sum insured based on the value of your property and assets.

Householder's Policy: This comprehensive fire insurance protects you from hazards and liabilities as a homeowner. It covers not only the fire damage or loss of your property and belongings but also the personal injuries, thefts, and legal issues that may arise from such incidents. You can choose the policy sections that suit your situation and preferences.

Industrial All Risks Policy: This policy covers fire-related damage and other perils, as well as business interruption, machinery breakdown, boiler explosion, and other risks you may face as an industrialist.

Consequential Loss Policy: This fire insurance policy covers the loss of profit, fixed expenses, and increased work costs that you may incur because of the interruption of your business operations because of fire and other perils.

You can opt for this policy as a rider to your standard fire and special perils or industrial all-risks policy.

Features of Fire Insurance

Insurable Interest

This is the first essential characteristic of fire insurance. To be insured by fire insurance, you must have an insurable interest in the property. That means you must benefit from the property's survival and suffer from its destruction. The insurable interest must exist both at the time of taking the policy and when filing a claim.

Utmost Good Faith

You and the insurer must act with utmost good faith while entering a fire insurance contract. As a policyholder, you must disclose all the relevant information about the property, such as its location, construction, contents, and fire hazards.

Any misrepresentation or concealment of facts can make the contract void. Similarly, the insurer must provide all the details about the policy, such as its coverage, exclusions, terms, and conditions.

Contract of Indemnity

It is a contract of indemnity. The insurer will only reimburse you for the original loss or damage caused by fire and up to the sum insured. You cannot make any profit from the insurance claim. The insurer will also deduct the depreciation and salvage value of the property from the claim amount.

Direct Cause of Loss

The fire insurance policy will only cover the loss directly caused by fire. The fire must be accidental and beyond the control of the policyholder. The policy will not cover the loss or damage caused by other factors, such as water, theft, or explosion, unless they are specifically included.

Description of Property

You must provide a full and accurate description of the property to be insured by fire insurance. You must also specify the property's location, nature, value, and contents. Also, inform the insurer about any changes or modifications in the property that may affect the fire risk.

Personal Insurance Contract

The fire insurance contract is a personal insurance contract based on the relationship between the policyholder and the insurer.

You cannot transfer the policy to another person without the insurer's consent. If you sell or transfer the ownership of the property to someone else, the policy will automatically terminate.

Personal Right

The insured has a personal right to claim compensation from the insurer in case of fire loss or damage. Unless the insurer agrees, they cannot assign this right to anyone else. The insured can also sue the insurer for breach of insurance contract if the insurer fails to pay the claim.

Property Coverage

As discussed, the policy explicitly covers property loss and damage resulting from fire and other associated risks.

The property it usually covers includes buildings, machinery, furniture, fixtures, stock, raw materials, and goods in transit. One can choose the type and extent of property coverage based on their needs and preferences.

Valuation of Property

Fire insurance policies value the insured property based on either replacement or market value. Replacement value is the amount required to replace the damaged or lost property with a new one of the same kind and quality.

Market value is the amount the property would fetch in the open market at the time of the loss. You can opt for either replacement or market value based on convenience and affordability.

Premium Determinants

The policy determines the premium based on various factors, such as the property's type and value, risk exposure and location, duration and scope of the policy, add-on covers and discounts availed, etc.

However, you may lower the premium by opting for higher deductibles, a lower sum insured, or a longer policy term.

Deductibles and Limits

These policies have deductibles and limits that affect the claim amount and the coverage scope. Deductibles are the amounts the policyholder must bear from their own pocket before the insurance provider pays the claim.

Limits are the maximum sum the insurer will pay for a particular loss or damage. You can choose the deductibles and limits based on your risk appetite and budget.

Advantages of Fire Insurance

Financial Protection

The primary need for fire insurance is to save the property owner from financial damage. A fire policy offers financial relief by covering the fire damage or loss of property and belongings. They can help you rebuild or replace them. If you have to move out of your property because of fire damage, the policy can also pay for your temporary living expenses.

Legal Liability

Fire insurance policies protect you from the legal responsibility you may have for harming third parties in fire incidents. This can involve the harm to their health, life, or property that results from your carelessness or mistake.

Fire insurance policies can also pay for the legal costs and charges you may face in case of a lawsuit or agreement.

Business Continuity

This policy helps businesses resume operations and recover from fire losses. It may also cover the loss of profit, fixed expenses, and increased work costs that you may incur because of the interruption of your business operations because of fire and other perils.

Fire insurance policies can also cover the loss of stock, raw materials, goods in transit, and machinery essential for your business activities.

Add-on Covers

Fire insurance policies offer various add-on covers that provide additional benefits and protection to the policyholders. Some of the common add-on covers are listed below:

  • Deterioration of Stock in Cold Storage

  • Forest Fire

  • Leakage and Contamination Cover

  • Earthquake (Fire and Shock)

  • Spontaneous combustion

  • Impact damage by the insured's vehicle, etc.

  • Omission to cover alterations, additions, or extensions

  • Spoilage Material Damage Cover

  • Loss of Rent

Peace of Mind

Fire insurance policies offer a sense of security and confidence to the property owner or user. It can reduce stress and anxiety in fire accidents and help cope with the situation. Fire insurance policies can also enhance the business owner’s reputation and credibility as a responsible and prudent property owner.

How to Choose the Best Fire Insurance Policy?

  • Fire policies from various insurers may have different inclusions, exclusions and offerings. Consider the advantages and disadvantages of fire insurance policies before selecting the best option.

  • Assess the risk exposure and the value of the property to be insured.

  • Compare the features, benefits, and premiums of different fire insurance policies.

  • Check the claim settlement ratio and reputation of the insurance provider. The claim settlement ratio is the proportion of claims the insurance provider has settled out of the total claims received.

  • Go through the policy document thoroughly and grasp the terms and conditions.

Conclusion

A fire insurance policy is a valuable SME insurance policy that protects property and assets from fire and other perils. Among the various functions of fire insurance, some essential ones are providing financial protection, assisting with legal liability, maintaining business continuity, and providing peace of mind to a property owner or user.

However, you must choose the best fire insurance that suits your needs and budget. You can follow the tips and guidelines above to select the most suitable fire insurance policy.

Tata AIG offers customisable and budget-friendly fire insurance plans.

FAQS

What is fire insurance?

Fire insurance is a type of property insurance that covers damage or loss to property caused by fire and allied perils.

What is the importance of fire insurance?

Fire insurance is needed to protect oneself from the financial losses and hardships resulting from fire-related disasters.

What is insurance and its advantages?

Insurance involves a mutual agreement between the insurance company and the policyholder. The insurer agrees to pay the policyholder for the losses or damages resulting from certain events or hazards in exchange for the payments made by the policyholder.

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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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