FIRE INSURANCE

A fire insurance is an agreement under which the insurer in return for a consideration undertakes to indemnify the insured for the financial loss which the latter may suffer due to destruction of or damage to property or goods, caused by fire, during a specified period. It thus covers the risk of loss of property by accidental and non intentional fire.

Types of Fire Policies:

The following kind of policies are generally used for fire insurance

Valued Policy: 

          It is the policy in which the value of property is ascertained and agreed under which the insurer agrees to pay a pre-determined amount if the subject matter is destroyed or damaged by fire. The agreed value may be more or less than market value at the time of loss. This type of policy is not very common these days.

Specific Policy:

          It is a policy which insures a risk for specific amount. In case of any loss under this policy, the insurer pays whole loss provided it is not more than the sum specified in the policy.  It can be explained with an example: An insurance policy is taken for Rs. 50,000 and the value of the property is Rs. 80,000. If the property worth Rs. 40,000 is lost, the insured will get the whole amount of loss. If the loss is up to Rs. 50,000, it will be paid in full. In case loss exceeds Rs. 50,000, say it is Rs. 60,000, the indemnity will only be upto the amount insured i.e. Rs. 50,000. The value of goods/property is not considered for this purpose.

Average Policy:

          An average policy contains the the "average clause" to penalise the insured for taking up a policy for a lesser sum than the value of the property. If the property is under insured, the insurer will bear only that proportion of the actual loss which the sum assured bears to the actual value of the property at the time of loss.

          Suppose a person takes up a fire insurance policy of Rs. 20,000 and the value of the property is Rs. 30,000. If there is a loss of property worth Rs. 50,000, the underwriter pays compensation of Rs. 10,000 (20,000/30,000 x 15,000) and not Rs. 15,000. It discourages the insured to get under-valued policy.

Floating Policy:

          It is the policy which covers the risk of goods lying at different places under one amount and for one premium. The premium is normally charged under this policy is the average of premium that would have been paid if specific policies would have been taken for all these goods.

          

Excess Policy:

          Where the stocks of the insured fluctuate he may take out a policy for the amount which his stocks normally do not fall known as First Loss Policy and another policy to cover the maximum amount of stocks which may be reached at times known as Excess Policy.

Blanket Policy:

          A blanket policy covers all assets - both fixed as well as current assets under one policy.

Comprehensive Policy:

           A policy which covers all risks such as fire, explosion, lightening, burglary, riots, labour disturbances etc. upto a certain specified amount is known as comprehensive policy.

Consequential loss Policy:

          Fire may dislocate work in the factory and production may go down while the fixed expenses continue at the same rate. The objective of this policy is to indemnify the insured against the loss or profit caused by any interruption of business due to fire.

Re-instatement Policy:

          It is the policy under which the insurer pays the amount which is sufficient to re-instate assets or property destroyed.

Open declaration Policy:

          It is a policy whereby the insured makes a deposit with the insurer and decrease the value of the subject matter in respect of which risk is covered.

          

Types of Insurance

Insurance is divided into two board two types: Life Insurance Policy & General Insurance Policy.

What is insurance??

Life Insurance Policy:

Life insurance policy covers the "life-risk" of the insured person. In life insurance policy, the amount is payable on the happening of an event which is bound to occur i.e. death. In case of death, the nominee will get the Insurance Policy amount. This form of Insurance is also described as "Assurance". 

However life insurance policy also provides for payment of the policy value at maturity or by instalments and an agreed bonus. The payment may either be in lumpsum on aturity of the policy or may be paid in instalments called annuity.

Further life insurance can be divided into three types as Whole life insurance, Term assurance and Annuity. In whole life insurance, payment is made only on the death of Insured. In term assurance, the policy amount is paid in "lump-sum" on maturity of the term of the Life Insurance Policy(say 20 years). In Annuity, the policy amount is disbursed in installments(generally monthly) on the maturity of policy.

General Insurance Policy:

General insurance means insurance other than life insurance. It is called property and casualty insurance in U.S. & Canada and non-life insurance in Europe. General insurance is classified into three categories:

1. Fire Insurance
2. Marine Insurance
3. Miscellaneous Insurance

What is Insurance?

Insurance is a contract where one party the Insurance Company called "Insurer" undrtakes to indemnify specified losses sufferred by the other party called "Insured" for a special considerations called "Premium". Insurance is designed to protect the financial well-being of an individual, company or other entity in the case of unexpected loss.

Important terms used in Insurance Business:

 Insurance Policy:

Insurance Policy is the document issued by the insurance company containing terms of insurance contract which specifies the losses covered by the policies. It also contain details about the maximum amount that can be paid out in the event of losses/death which is called policy amount.

Premium:

Premium is the amount paid by the insured to the Insurance Company in consideration of the contract of Insurance. The payment is generally made anually.

Claims:

A claim occurs when a policy fall due for payment. In life insurance, it arrises on death or on maturity of policy whereas in case of general insurance, the claim arises only when the loss occurs.

 Surrender Value:

When the policy holder wishes to realise the amount of policy before the expiry of the full period of the policy, he surrenders his right under the policy and is paid amount calculated by fixed formula. It applies only on Life Insurance Policy.

 Commission:

Insurance companies get business through agents and thes agents receive commission on the basis of the amount of premium they generate for Insurance company.

Reinsurance:
If insurance company does not wish to bear the  whole risk of policy, then it will reinsurance a part of risk with other insurer.

Paid Up Policy:
If an insured is unable to continue to paying premium on his life policy, he may discontinue the payment and convert the policy into a "Paid-Up" policy. It is applicble only to life insurance.

Annuity:
It is a contract that provides an income for a specific period of time to say for a number of years or for life.

Catastrophic Loss:
A loss which is unbearable i.e. it causes severe consequences such as bankruptcy to a family, organization, or insurer.

Principles of Insurance:

There are several principles governing insurance business. The important principles are mentioned below:

Principle of indemnity:

Insurance is a contract of indemnity. The insurer is called indemnifier and the insured is indemnity.  In a contract of indemnity, only those who suffer loss are compensated to the extent of actual loss suufered by them. One cannot make profit by insuring the risks.

Insurable Interest:

All and sundry cannot enter into contracts of insurance.  For example, A cannot insure the life of B who is a total stranger. But if B happens to be his wife or his debtor or his manager, A has insurable interest.

Principle of uberrimae fiedei:

There is no positive duty to tell the whole truth in relation to subject matter of the contract but there is only negative obligation to tell nothing but the truth under ordinary law of contract. But in case of contract of insurance, there is an implied condition that each party must disclose every material fact known to him.

Type Of INSURANCE