Fire Insurance

Fire Insurance

A fire insurance contract may be defined as an agreement whereby one party, for a consideration, undertakes to indemnify the other party up to an agreed amount against financial loss of goods or property which the latter may suffer because of fire. Fire insurance thus covers the risk of loss of property by accidental and non-intentional fire.

Types of Fire Policies

(i) Valued policy: A policy in which the value of the property is ascertained and/or agreed upon which the insurer undertakes to pay in the event of destruction of goods/property by fire is known as the valued policy. This type of policy is not very common these days.

(ii) Specific policy: It is a policy which insures a risk for a 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. Thus, the value of the goods/property is not considered for this purpose.

(iii) Average policy : An average policy contains the ‘average clause’ which lays down that if the property is under-insured, i.e. insured for a sum smaller than the value of the property, 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.

(iv) Floating policy: It is the policy which covers several types of goods lying at different locations under one amount and for one premium. The premium normally charged under this policy is the average of the premia that would have been paid if each lot of the goods had been insured under specific policies for specific sums.

(v) Excess policy: Where the stocks of the insured fluctuate he may take out a policy for the amount below which his stocks normally do not fall and another policy to cover the maximum amount of stocks which may be reached at times. The former type of policy is known as the First Loss Policy and the latter as the Excess Policy.

(vi) Blanket policy: A blanket policy is that which covers all assets - fixed as well as current - under one policy.

(vii) Comprehensive policy: A policy which covers risks such as fire, flood, riots, strikes, burglary etc. up to a certain specified amount is known as the comprehensive policy.

(viii) Consequential loss policy: The objective of this policy is to indemnify the insured against the loss of profit caused by any interruption of business due to fire. It is also known as Loss of Profit Policy.

(ix) Reinstatement policy: It is a policy under which the insurer pays the amount which is sufficient to reinstate assets or property destroyed.

(x) Open declaration policy: It is a policy whereby the insured makes a deposit with the insurer and declares the value of the subject matter in respect of which risk is covered. Such policies are normally taken where the value of stocks etc. fluctuates considerably.