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Types of Fire Insurance

  • Author :
  • TATA AIG Team
  • Published on :
  • 19/02/2024
  • 2 min read

Fire damage is one of the most common hazards that can result in a higher degree of damage to property and goods. The various causes of fire outbreaks in commercial areas include short circuits, explosions, combustible dust, faulty wiring, equipment or machinery failure, man-made calamities, and so on.

Fire accidents can happen anytime, regardless of how many safety regulations you are following. The best way to overcome the resulting damages is by having fire insurance.

Suitable fire insurance not only covers unforeseen fire incidents but it also covers many other risks your property might be exposed to. These include theft, burglary, and natural calamities like storms, floods, landslides, etc.

If you are planning to purchase a reliable fire insurance policy and are wondering how many types of fire insurance policies there are, you have come to the right place.

In this blog, we will outline what is a fire insurance policy in India along with its main types. Read on!

What is a Fire Insurance Policy in India?

It is a type of fire insurance that acts as a contract between an insurance firm and a policyholder in which the insurance provider takes the responsibility of indemnifying the policyholders for any kind of damages and losses resulting from a fire outbreak.

This policy helps the insured to recover the fire damage by providing the necessary financial support.

Understanding Fire Insurance Policy Coverage

Now that you have understood the fire insurance policy meaning, it is time to take a look at its inclusions.

Besides covering fire damage, a reliable fire insurance policy also covers certain other potential risks, including burglary, theft, natural disaster damage, and more.

Below are the main perils covered under a fire insurance policy in India:

Explosion and Implosion

Thunderstorms

Lightening

Damage due to missile testing

Storm, Tempest, Flood, and Inundation or STFI

Impact damage

Landslides/rockslides

Bushfire/jungle fire

Water overflow or bursting of apparatus

Strikes and riots

Theft

What is Not Covered Under Fire Insurance in India?

In most cases, fire insurance does not offer coverage for the following scenarios:

Fire damage caused by an earthquake

Loss due to nuclear risks

Risks such as wars, foreign invasions,

Damage due to willful negligence

Spontaneous combustion

Losses due to contamination or pollution

Underground fires

Fire by the order of public authorities

Different Types of Fire Insurance Policies

There are different kinds of fire insurance policies you can buy depending on your risk exposure and other requirements. The following are the main types of fire insurance to choose from:

Valued Policy

Valued policy is a type of insurance in which the value of the insured item is decided in advance and gets indemnified accordingly if it suffers damage as per the terms and conditions.

In this type of fire insurance, the value of the sum insured for a valued item will not be changed regardless of its market value at present. This type of policy is mainly used for items such as jewellery, paintings, crafts, and articles whose price is subject to change.

Let’s understand a valued policy with an example: Suppose you insure a gold necklace worth ₹50,000 using valued fire insurance. Now, in the event of damage or loss to this necklace, your insurance provider will offer coverage of only ₹50,000, regardless of the current price of your necklace.

Average Policy

There is an average clause in fire insurance policies. When it is applied, the normal policy becomes an Average Policy. This type of fire insurance policy is used to penalise the insured for having a policy with a lesser sum insured as compared to the actual value of the property.

If the insured property suffers damage more than the insured sum, the Average clause is applied, and the resulting loss due to under-insurance is transferred to the policyholder.

For example, suppose you have a property worth ₹8,00,000, but you only insure it for ₹5,00,000. Now, if you suffer damage or loss worth ₹6,00,000 due to a fire accident, the insurance company will apply an Average clause to decide the reimbursement amount.

The insurance recovery is calculated as : [(Insured Value)/ (Actual Value) ] * Loss

= [5,00,000 / 8,00,000 ] * 6,00,000

= ₹3,75,000.

Thus, your insurance company will only pay ₹3,75,000 and not ₹6,00,000. You have to pay the rest of the amount out of your pocket as a penalty for under insurance.

Comprehensive Policy

A comprehensive policy, as the name suggests, is a fire insurance policy that offers comprehensive coverage for a variety of perils alongside fire accidents. Our Fire and Burglary Insurance is a good example of a comprehensive fire insurance policy.

Floating Policy

A floating policy allows you to insure multiple properties or items scattered at different places. For example, suppose you have 4 shops at different locations.

So, rather than purchasing an individual fire insurance policy for each, you can purchase a floating policy for all the properties you want to insure.

In case any insured property undergoes a loss or damage as per the terms, the insurance provider will reimburse you according to a decided sum insured.

Replacement Policy

As the name suggests, a replacement policy involves replacing the damaged assets caused by a covered risk. In this type of policy, the insurance provider pays the replacement value of the insured item, which is calculated after taking into consideration its current market value minus the depreciation rate.

Specific Policy

Specific policy offers coverage up to a pre-specified amount, which is usually lower than the actual value of the insured property. For instance, if you have fire insurance worth ₹50,000 and your property suffers a loss of ₹80,000, then the insurance company will only offer ₹50,000 as compensation.

But the good thing is, you will not be penalised, similar to the case of an Average policy, because the value of the property is not considered with this policy.

Who Should Buy Fire Insurance Policies in India?

Fire insurance can be purchased by anyone who is exposed to the risk of fire outbreaks. Some of the suitable candidates for fire insurance are:

Business Owners

Any institution/organisation/firm exposed to the risk of loss due to fire accidents.

Manufacturing firms

Warehouse owners

Hospitals

Hotels and Lodging Centres

Transporter

Shop Owners

Residential Property Owners

Educational institutions

Banks and other financial institutions

Final Words

There are several types of fire insurance policies designed to align with the varied requirements of the policyholders. While each policy comes with different features and benefits, all of them serve a common purpose - protecting the policyholders from potential losses. So, examine your risks, outline your requirements, and buy suitable fire insurance .

You can also check out our Tata AIG SME insurance for wide coverage and excellent features for an all-round protection against various perils.

FAQS

How to choose the best type of fire insurance policy?

In order to choose the best fire insurance policy, you must take some important factors into consideration, such as your risk exposure, type of coverage required, price, and so on.

Can I buy fire insurance online?

Yes, you can buy the desired fire insurance policy online by visiting the website of your insurance provider. All you need to do is submit a few details and place your quote. The in-house experts will revert you back with a plan based on your requirements.

Is fire insurance mandatory for businesses?

Fire insurance is not a mandatory requirement for running businesses in India. However, having a suitable fire insurance policy is strictly recommended as it helps you mitigate the fire and related risks and keep your business up and running even in unfavourable situations.

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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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