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Types of Fire Insurance (With Simple Examples)

It is important to ensure the safety of your property (flat, shop, goods, etc) from unforeseen accidents that can be caused due to fire. In this article, we will discuss the various types of fire insurance policies, but first, let us know what is fire insurance?

What is fire insurance?

Fire insurance is an agreement between the insured and the insurance company, in which the insurance company agrees to compensate the insured against the damages caused to the insured property due to fire. It can be bought as a part of property insurance or standalone insurance.

What are the types of fire insurance?

Floater policy

A floater policy covers various assets at different locations. All the assets can be covered within one single policy. The assets will be covered on a floater basis. This would be an ideal policy for a person who owns various warehouses at separate locations.
The policyholder needs to provide updated and correct details about the insured properties. If the provided details are falsified in any way it will lead to a breach of utmost faith resulting in the insurance contract being null and void, thus is imperative to provide the correct information to companies at all times.

Comprehensive policy

A comprehensive policy covers the insured against maximum possible accidents and setbacks. A comprehensive policy provides coverage against fire, earthquake, burglary, lightning, theft, explosion, labor unrest, third-party liabilities, and other dangers. It is also known as an all-risk policy.

Valued policy

A valued policy is issued when the value of the asset cannot be ascertained. In this case, a predetermined amount is fixed between the insurance company and the insured. in case a claim is made, the agreed value will be paid by the insurance company to the policyholder. A valued policy is opted to cover items such as Jewellery, artwork, craft, etc.

Specific policy

In a specific policy, a specified amount is fixed in advance for an asset. In case of an incident, the predetermined amount or the actual amount of the loss, whichever is less will be paid to the insured.
For instance, Mr. Roy has taken a specific fire insurance policy with a value of Rs 2 lakh, if there is a loss of Rs 2.5 Lakhs due to fire, the insurance company will be only liable to pay Rs 2 lakhs even though the loss caused is Rs 2.5 Lakhs.

Replacement policy

This is a policy where the insurer undertakes to replace the property or goods destroyed by fire. In this policy, instead of paying the compensation for the property lost by fire, the property is instead replaced.

While paying the compensation, the depreciation value of the property is not calculated.

Average policy clause

An average clause is added to penalize the insured for taking up a policy for a lesser sum than the value of the property. The compensation payable will be proportionally reduced if the value of the policy is less than the value of the asset. It discourages the insured from getting an undervalued policy

Example

If you have taken a policy of Rs 1 Lakh against the market value of 2 Lakhs and the loss incurred due to fire is Rs 50 Thousand, since you have only covered 50% of the asset, the company will be liable to pay only 50% of the loss amount. in this case, the insurance company will be liable to pay only Rs 25,000.

What will be covered in the fire insurance policy?

Subject to the following terms and conditions of the policy, a fire insurance policy provides coverage to the loss incurred due to accidental fire. Let us see some of the inclusions stated under the standard fire and special perils policy.

  • Fire
  • Aircraft damage
  • Explosion/ Implosion
  • Bush fire
  • Leakage from automatic sprinkler installations
  • Overflowing of water from tanks and pipes.
  • Riots and strikes
  • Damage caused to property from storm, tycoon
  • Rockslide, landslide


Not all situations are covered under the fire insurance policy. Here are some exclusions

Exclusions

  • Loss caused by nuclear perils, nuclear waste, or any radioactivity.
  • Loss due to war, civil war, invasion.
  • Loss due to planned intentional fire.
  • Loss due to earthquake.

Companies that provide fire insurance in India

  • Magma HDI General Insurance Company
  • Tata AIG General Insurance Company¬†
  • Cholamandalam MS General Insurance
  • Oriental Insurance Company

Are you looking for a new insurance policy or a policy renewal? Reach out to us and let us assist you.

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