A fire insurance policy involves an insurance company agreeing to pay a certain amount equivalent to the estimated loss caused by fire to the insured, within the time specified in the contract. The indemnity is subject to change depending upon the policy. One should confirm with the insurer about the types of risks covered, since one cannot insure the property against all types of risks of fire.
What is the extent of coverage under a Fire Insurance Policy?
Fire insurance provides protection for the estimated value of the physical house. However, there are a number of exclusions to the same, for example medical bills, loss of human life and pets, loss of personal belongings, structures outside the property (including garages and gazebos), damage to the landscape and expenses for accommodation for the time being. These things can be covered under a package of extended property insurance.
What are the main types of Fire Insurance policies?
- Specific Policy: The insurer is liable to pay a set amount lesser than the property’s real value. In this policy, the property’s actual value is not considered to determine the indemnity. The average clause, which requires the insured to bear the loss to some extent, does not play a role in this policy. In case the insurer inserts the clause, the policy will be known as an average policy.
- Comprehensive policy: This all-in-one policy indemnifies for loss arising out of fire, burglary, theft and third party risks. The policyholder may also get paid for the loss of profits incurred due to fire till the time the business remains shut.
- Valued policy: This policy is a departure from the standard contract of indemnity. The amount of indemnity is fixed and the actual loss is not taken into consideration.
- Floating policy: This policy is subject to the ‘average clause’. The extent of coverage expands to different properties belonging to the policyholder under the same contract and one premium. The policy may also provide protection to goods kept at two different stores.
- Replacement or Re-instatement policy: This policy is subject to the re-instatement clause, which requires the insurance company to pay for replacing the damaged property. So, instead of giving out cash, the insurer can re-instate the property as an alternative option.
Why does one need Fire Insurance?
Fire insurance is important because a disaster can occur at any time. There could be many factors behind a fire, for example arson, natural elements, faulty wiring, etc. Some facts that stress the importance of fire insurance include: