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.