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Why Do We Need Fire Insurance

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

Fire insurance policies offer coverage against unexpected fires and fire-related events like lightning, explosions, impact damage, etc. This type of property insurance is essential for all business owners, as any type of fire damage is almost always irreparable.

Fires can result in a loss of goods and a complete halt in business operations, resulting in significant financial losses, bringing your life to a standstill at times. This can be exhausting both financially and emotionally. Hence, a fire insurance policy is a must.

Read on to learn about the importance of fire insurance to help secure your business today!

Meaning of Fire Insurance

A fire insurance policy is a type of property insurance that specifically protects your business or private property from fire or fire-related events. These can be events like:

Lightning strikes resulting in fires.

Implosions or explosions.

Bushes fires or jungle/forest fires.

Malicious acts like riots, strikes and other fear-mongering activities.

Bursting/overflowing water tanks and pipes.

Malfunctioning automatic water sprinkler systems.

Natural calamities like floods, typhoons, hurricanes, earthquakes, etc. (can vary across insurers).

Property damage from landslides or rockslides.

Missile testing operation on property premises.

Impact damage by external sources.

This policy will cover the repair, replacement and reconstruction of insured property like buildings, goods, inventory or equipment, should they suffer damage from any of these events.

Simply put, the main objective of fire insurance is to ensure financial security in case of a fire.

Fire policies will also sometimes cover theft or come bundled with burglary insurance, so some insurers like us at Tata AIG may offer fire and burglary insurance under one policy.

You should note that, like all insurance policies, fire insurance policies will have policy exclusions as well.

This can vary across insurers, but some general exclusions include breaches of law, intentional damage by the policyholder, damage from war or nuclear attacks and negligence.

Importance of Fire Insurance: Why Do We Need it?

Financial Protection: Fires can cause huge losses and any resulting repair/replacement/reconstruction costs can quickly lead to the depletion of company funds.

However, for businesses insured under a fire insurance policy, the insurer takes care of these costs, minimising the financial impact and preventing any cases of bankruptcy.

Business Continuity: Fires can destroy assets like inventory, merchandise, equipment, etc., which are essential to carry out business operations. A fire insurance policy can ensure that these assets are quickly repaired or replaced, preventing any delays or halt in operations.

Risk Management: Having any form of insurance is considered a proactive form of risk management. Hence, by transferring the risk of fire-related losses to an insurance company, you ensure that any fire-related financial implications will be taken care of in your stead.

Who Needs a Fire Insurance Policy?

Homeowners: Your house holds a lot of sentimental value and irreplaceable possessions that can not be replaced in the event of a fire. While it may not bring everything back, a fire insurance policy ensures that you get the financial assistance you need in case of any fire-related losses.

Business Owners: All businesses need fire insurance. This holds true for small start-ups, growing companies and large organisations as business owners invest years of effort and resources into sustaining their companies.

A catastrophic event like fire can bring it all crashing down. Hence, a fire insurance policy will help to secure physical assets and ensure that any fire-related set-backs do not disrupt the continuity of business.

Landlords: Those who own real estate or rent out property are obligated to safeguard their tenants' interests. Fire insurance acts as a safety net in case of fire-related accidents, protecting your investment and also allows you to extend this coverage to the tenants' interests.

Builders and Contractors: Anyone engaged in construction projects residential or commercial, will undoubtedly benefit from a fire insurance policy. It will help shield any investments made towards labour, construction materials and the property as a whole against fires.

Financial Institutions: Banks and other lending institutions also have a vested interest in protecting their assets and collateral from any fire damage. A fire insurance policy is essential for these institutions.

Educational Institutions and Public Buildings: These can be places like universities, schools, hospitals, government buildings and other public institutions essential for a community's well-being. Fire insurance ensures that reconstruction can be implemented swiftly in case of fire-related damage.

Features of Fire Insurance

These are some key elements of fire insurance that you must be familiar with to better understand how a fire insurance policy works:

Insurable Interest: Fire policies require the insured property to have a financial interest component. This ensures that any fire damage to this property will result in a direct loss for you, allowing the insurer to reimburse you for said loss monetarily.

Sum Insured: Fire insurance policies are indemnity-based plans. This means that any repairs/replacement/reconstruction amounts for the insured property will be compensated up to the maximum sum insured limit under the policy.

Premiums: This is an amount paid by you (the policyholder) to the insurance company for your fire insurance policy coverage. This amount is determined based on factors like the value of the insured property, its location and your claim history.

Policy Terms and Conditions: These will be terms like the policy tenure, deductibles, inclusions, exclusions and your obligations to the insurer. Most fire insurance policies will have a 1-year tenure, after which they must be renewed to ensure sustained coverage.

Advantages of Fire Insurance

Covers Huge Losses: Fires are incredibly destructive in nature. Even the resulting smoke and heat can cause significant damage to the insured building or merchandise, resulting in a net loss of the business. A fire insurance policy can help reimburse you for these losses, preventing any financial crisis for the company.

Replace Damaged Assets: Fire insurance not only helps to replace damaged goods but also offers financial assistance for maintenance charges for damaged machines and equipment after a fire.

Temporary Accommodation: In cases where a fire has severely damaged your base of operations, a fire insurance policy will help arrange alternative accommodations where you can continue to tend to your clients.

Sense of Security: Even if you have taken all of the necessary precautions and have abided by all fire safety precautions, fires are still a possibility, no matter how unlikely. A fire insurance policy helps cover those what-if situations, offering you peace of mind and allowing you to securely run your business.

Covers Medical Expenses: In cases where your employees have suffered injuries due to a fire or fire-related event, your fire insurance policy will help cover their medical expenses in addition to reimbursing you for property loss or damage.

What is the Claim Settlement Procedure in a Fire Insurance Policy?

Step 1: Inform Your Insurer

The first step after contacting the relevant authorities – fire department, police, etc., would be to contact your insurer and inform them of what has happened. To initiate your fire & burglary insurance claim process with Tata AIG, you can contact us through our helpline.

Step 2: Provide the Necessary Documentation

You must provide a detailed account of your insured property's estimated value. This can be things like itineraries, settlement documents or property tax bills displaying your property's value.

Remember to take photographic and video evidence of the sustained damages wherever possible when sending your claims application to us via email.

Step 3: Property Inspection

Upon receiving your claim application, we will dispatch a surveyor to your property to check the extent of fire damage. Make sure you answer all their questions honestly and offer any additional information to help streamline your claims settlement.

Step 4: Get Reimbursed!

Upon verification and approval of your claim application, we will contact you about the reimbursement process to ensure you are adequately reimbursed.

Conclusion

A fire insurance policy acts as a financial safety net for companies, reimbursing business owners the actual value of their property in case of any losses. This allows them to quickly get back on their feet, resulting in less downtime and delays after any fires or fire-related accidents.

Many fire insurance policies also come with add-on covers that help reimburse consequential losses or help cover additional expenses during property reconstruction.

At Tata AIG, we offer several SME insurance policies with built-in covers you can opt for to cover these scenarios.

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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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