Benefits & Features of Fire Insurance

Features of Fire Insurance

1. Fire insurance operates on the principle of indemnity, meaning the insured will be compensated for their loss up to a certain limit, subject to the maximum sum insured.
2. The policyholder must have an insurable interest in the subject matter of the insurance contract both when purchasing the policy and at the time of the loss.
3. A fire insurance policy covers the risk of damage or loss caused by fire or related causes.
4. Fire insurance policies typically have a one-year term and will automatically lapse unless renewed.

Benefits of Fire Insurance

Here are a few benefits of having a fire insurance policy:

Financial Protection

Fire insurance primarily protects property owners from financial loss due to fire damage. It covers the costs of repairing or replacing property and belongings damaged by fire. If you need to move out temporarily due to fire damage, the policy can also pay for your living expenses.

Legal Liability

Fire insurance policies protect you from legal responsibilities if a fire you caused harms third parties. This includes damage to their health, life, or property due to your negligence. The policy can also cover legal costs and charges if you face a lawsuit or settlement.

Business Continuity

For businesses, fire insurance helps resume operations and recover from fire losses. It can cover lost profits, fixed expenses, and increased costs due to business interruptions. The policy may also cover the loss of stock, raw materials, goods in transit, and essential machinery.

Uses of Fire Insurance

Fire insurance policy has been designed to reimburse the cost of repair, reconstruction or replacement of the property damaged or destroyed in a fire. Besides, fire insurance also covers property loss or damages due to smoke, water and damages caused by the firefighters.

Characteristics of Fire Insurance

If you are planning to insure your office space with fire insurance, here are some of the basic characteristics of fire insurance that plays an important role in ensuring the right policy:

Insurable Interest

Fire insurance demands the insured to have an insurable interest in the property to be insured. The insurable interest is the basic of having fire insurance, which makes the insurer eligible for ensuring insurance benefits in case of loss. It should exist both at the time of buying insurance and while claiming your insurance.

Utmost Faith

Fire insurance deal is based on the principle of greatest good faith, which demands no secrets to keep. This compels the insured to disclose all important points with regard to the subject-matter of the fire insurance policy so that the insurer can have a proper analysis of risks associated. The insured should give all the related information pertaining to location, construction of the property, the probability of fire incident etc. however, the insurance company has all rights to terminate the contract if any important point is not disclosed.

Likewise, the insurer should give the complete details of the policy without hiding about the clause or hidden charges.

Contract of Indemnity

The policyholder can claim up to the sum insured offered under fire insurance. In case there is no loss, no claim will be entertained.

Personal Insurance Contract

As fire insurance provides financial protection to the property, the involvement of the insured is inevitable. Thus, it is necessary for the insurance provider to keep an eye on every behaviour of the insured. Moreover, the insured can’t make any change in the policy without the consent of the insurer. Even if the possession is transferred to a third-party and the insurer is not informed, it has complete authority to terminate the policy right away.

Personal Right

The person whose name is mentioned in the fire insurance contract as the policyholder is eligible to receive the insured amount in case of any loss or damage.

Direct Cause of Loss

The only condition to avail the benefits of fire insurance is that fire should be the immediate and direct cause of the loss or damage for which the claim arises.

Description of Property

The true description of the property at the time of buying insurance should be mentioned in the fine print. It is important as the insurer compensates the claimed amount only if the accident happens at the mentioned location. Any change in the location will lead to claim rejection. If there is any change, the same needs to be intimated to the insurer.

Wait Here is the Catch!

While claiming for the losses under fire insurance, an average clause has to be fulfilled. This says a portion of the total loss has to be borne by the insured. The insurer will bear the proportion of the loss up to sum insured. Simply put, the insured has to bear the difference amount.

Let’s Illustrate-

• Suppose you have a property worth Rs. 10,00,000, where it is insured with fire insurance for Rs. 5,00,000. Now, in case of a fire outburst, if half of the property is damaged, the insurer will pay only 2,50,000, using the following formula:
• Insured amount (Rs.5,00,000) x Actual loss(Rs. 2.5,00,000) / Actual value of the property(Rs.10,00,000)
• The complete policy amount is payable only in case of complete destruction of the property if a fire outbreak occurs.

Wrapping it Up!

Fire insurance policy is a vital tool for safeguarding property owners from the financial burdens caused by fire damage. With its comprehensive coverage, it ensures financial protection, addresses legal liabilities, and supports business continuity. Fire insurance operates on key principles such as indemnity, insurable interest, and utmost faith, ensuring that policyholders receive fair compensation for their losses. By understanding the benefits, features, and characteristics of fire insurance, property owners can make informed decisions to protect their assets and maintain financial stability in the face of unexpected fire incidents.