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What is fire insurance? (Everything you need to know)

The answer to the question “what is fire insurance?” is simple. It is a legal, contractual agreement between a policyholder and an insurance company. However, there are some clauses related to this insurance you need to be informed about before applying for one. This can complicate the concept of those new insurance policies. In this article, we will explore in detail fire insurance meaning and what it entails.

What is fire insurance?

Fire insurance allows you to get insured against fire damages. Such a policy aims to provide compensation to you if there has been damage to your property via fire. For instance, if your house catches on fire, the fire insurance policy will cover the losses.

However, fire insurance also helps cover the repairs for the damage to your property. This may also extend to the coverage of the cost of your accommodation. Thus, fire insurance is somewhat of a lifesaver.

Why do you need fire insurance?

Imagine this: you put every penny you have saved into a new business. Your business is slowly picking up pace. However, one day you turn up to work and find that there has been a fire. The locality has been burned down. The shop next to yours had been razed to the ground, but the person is not in as much despair as you because they have a fire insurance policy. You, on the other hand, lose all savings and have to bear the loss yourself.

This does not sound ideal, does it?

More than twelve billion dollars of property damage was reported across fire stations. The statistics are as recent as 2019. The perils of an accidental fire are manifold. A fire insurance policy protects you and your interests in case of misfortune.

Let us take a look at how a fire insurance policy is beneficial to you:

  • As a policyholder, you are entitled to a fire insurance claim when there is a fire at your insured property.
  • The policy will cover the charges for any damage repair required.
  • Fire insurance policies also cover natural disasters such as lightning or gas explosions.

How does a fire insurance policy work?

The fire insurance company will compensate for the insured property. The insured property is the property for which you have paid insurance. The policyholder will also receive financial coverage for damaged assets in the interiors of the insured property.

What does a fire insurance policy cover?

If you become a policyholder, the fire insurance policy will cover several sources, including a short circuit, an electrical misfire, or even explosions. Fire insurance policies cover a range of sources, be it natural or man-made (read accidents, gas explosions, faulty pipes).

Types of fire insurance

Depending on your insurer, fire insurance policies may differ. Some of the basic policies offered by companies include:

Replacement policy

Here the compensation given is based on the market value of the insured property. The amount you will receive will be equal to the market value of your lost property after the depreciating value has been calculated. This means that you will need to look for an asset that is equal to the market price of your damaged property. No additional expense is given in case the price of your new asset exceeds the replacement cost.

Specific policy

If you opt for this policy, you will need to fix a particular amount. In case of any loss, you will receive an amount in compensation if the compensation required is less than the amount you had initially fixed.

Consequential loss policy

This is more suited to a business owner as the compensation handed over is calculated on the loss of sales. Essentially, you receive an amount for your profits. For instance, when there is a fire at a factory, there will still be some fixed expenditure. This expense can be covered by the insurance payout.

Comprehensive policy

An expansive policy that protects the insured property against all forms of danger: break-in, flood, fire outbreak, among other things.

Floating policy

This policy is beneficial to business owners, particularly those who handle import and export trade. This protects your goods when they are still amid delivery. It essentially covers these goods against fire outbreaks regardless of the places they’re stuck in. However, the policy holds only if all the goods belong to one person and one premium has been decided upon for all the goods.

Valued policy

A value is fixed initially based upon which the policyholder gets compensated.

What is not covered by fire insurance?

Any insurance policy comes with tiny prints. These clauses may decide whether you receive any coverage as a policyholder. For instance, the insurer is not liable to pay you anything if the fire has been caused by a nuclear attack. You will not receive compensation for your fire insurance policy in the following cases:

  • Market losses, or any type of consequential loss such as earning or delay.
  • Any damage incurred by earthquakes or volcanoes and other such natural disasters.
  • No coverage is provided during war or other such warlike situations.
  • You will not receive compensation for damage incurred by electric gears.
  • No coverage is provided in case of terrorism or any related activity.
  • Nuclear activities, radioactivity, and other related activities are not covered by the fire insurance policy.

Fire insurance is crucial to homeowners and business owners. Any property is an investment. Fire insurance policies help you protect these investments. It is always better to insure yourself in case of accidents, as it can help you out in a time of need.

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