Characteristics of Fire Insurance

1. Fire insurance is a contract of indemnity. The insurer is liable only to the extent of
the actual loss suffered. If there is no loss there is no liability even if there is a
fire.
2. Fire insurance is a contract of good faith. The policy-holder and the insurer must
disclose all the material facts known to them.
3. Fire insurance policy is usually made for one year only. The policy can be
renewed according to the terms of the policy.
4. The contract of insurance is embodied in a policy called the fire policy. Such
policies usually cover specific properties for a specified period.
5. Insurable Interest: A fire policy is valid only if the policy-holder has an
insurable interest in the property covered. Such interest must exist at the time
when the loss occurs. In English cases it has been held that the following persons
have insurable interest for the purposes of fire insurance- owner; tenants, bailees,
including carriers; mortgages and charge-holders.
6. In case of several policies for the same property, each insurer is entitled to
contribution from the others. After a loss occurs and payment is made, the insurer
is subrogated to the rights and interests of the policy-holder. An insurer can
reinsure a part of the risk.
7. Fire policies cover losses caused proximately by fire. The term loss by fire is
interpreted liberally. Example: A women hid her jewellery under the coal in her
fireplace. Later on she forgot about the jewellery and lit the fire. The jewellery
was damaged. Held, she could recover under the fire policy.
8. Nothing can be recovered under a fire policy if the fire is caused by a deliberate
act of policy-holder. In such cases the policy-holder is liable to criminal
prosecution.
9. Fire policies generally contain a condition that the insurer will not be liable if the
fire is caused by riot, civil disturbances, war and explosions. In the absence of any
specific expectation the insurer is liable for all losses caused by fire, whatever
may be the causes of the fire.
 10. Assignment: According to English law a policy of fire insurance can be assigned
only with the consent of the insurer. In India such consent is not necessary and the
policy can be assigned as a chose-in-action under the Transfer of Property Act.
The insurer is bound when notice is given to him. But the assignee cannot be
recovering damages unless he has an insurable interest in the property at the time
when the loss occurs. A stranger cannot sue on a fire policy.
11. Payment of Claims: Fire policies generally contain a clause providing that upon
the occurrence of fire the insurer shall be immediately notified so that the insurer
can take steps to salvage the remainder of the property and can also determine the
extent of the loss. Insurance companies keep experts on their staff of value the
loss. If in a policy there is an international over valuation of the property by the
policy-holder, the policy may be avoided on the ground of fraud.

Types of Fire Policies

There may be various types of fire policies. The principal types are described below:

Specific Policy

A specific policy is one under which the liability of the insurer is limited to a specified
sum which is less than the value of property.

Valued Policy

A valued policy is one under which the insurer agrees to pay a specific sum irrespective
of the actual loss suffered. A valued policy is not a contract of indemnity.

Average Policy

Where a property is insured for a sum which is less than its value, the policy may contain
a clause that the insurer shall not be liable to pay the full loss but only that proportion of
the loss which the amount insured for, bears to the full value of the property. Such a
clause is called the average clause and policies containing an average clause are called
average policies. The phrase ―subject to average‖ is equivalent to the insertion of an
average clause. ―Lloyd‘s Fire Policies are usually expressed to be ―subject to average‖.
Reinstatement or replacement Policy

In such policies the insurer undertakes to pay no the value of the property lost, but the
cost of replacement of the property destroyed or damaged. The insurer may retain an
option to replace the property instead of paying cash.

Floating Policy

When one policy covers property situated in different places it is called a floating policy.
Floating policies are always subject to an average clause.

Combined Policies

A single policy may cover losses due to a variety of cases, e.g. fire together with
burglary, third party losses, etc. A fire policy may include loss of profits, i.e. the insurer
may undertake to indemnify the policy holder not only for the loss caused by fire but also
for the loss of profits for the period during which the establishment concerned is kept
closed owing to the fire.

Fire insurance is a form of property insurance which protects people from the costs
incurred by fires. When a structure is covered by fire insurance, the insurance policy will
pay out in the event that the structure is damaged or destroyed by fire. Some standard
property insurance policies include fire insurance in their coverage, while in other cases,
fire insurance may need to be purchased separately. Property owners should check with
their insurance companies if they are not sure whether or not fire insurance is part of their
policies, and if fire insurance is not included, it should be purchased.
Depending on the terms of the policy, fire insurance may pay out the actual value of the
property after the fire, or it may pay out the replacement value. In a replacement value
policy, the structure will be replaced in the event of a fire, whether it has depreciated or
appreciated: in other words, if homeowners purchase a home and the value increases, as
long as it is covered by a replacement value policy, the insurance company will replace it.
An actual cash value policy covers the structure, less depreciation. Most accounts come
with coverage limits which may need to be adjusted as property values rise and fall.
Depending on the terms of the policy, the contents of the home as well as the structure
may be covered in the event of a fire. Some policies also provide a living allowance
which allows the victims of a fire to rent temporary housing while their homes are
repaired. These clauses in an insurance policy typically cause the policy to become more
expensive, since they will represent additional costs to the insurance company in the
event of a fire. However, they can be extremely useful if a fire occurs.

The cost of fire insurance varies widely. The use of fire alarms, sprinkler systems, and
other safety measures can decrease the cost of the policy, and may even be required for
some policies. Living in a region prone to wildfires will increase the cost of the
insurance, as the risk of a payout is greatly increased. Because many people purchase fire
insurance for their homes and businesses, insurance companies have a large risk pool,
making fire insurance less expensive than specialized insurance like earthquake or flood
insurance.
When purchasing fire insurance, people should be aware that some types of fires may not
be covered. For example, a fire caused by an earthquake might be excluded from a fire
insurance policy, as might a fire caused by an act of God. It is important to read the terms
of the policy carefully, and to ask for clarification from the insurance representative if the
terms are not clear. If a policy does not appear to meet the need, it should be renegotiated
until it is satisfactory.

Principles of Fire Insurance:

1. Valued policy

When the agreed value of the subject matter is mentioned in the policy is named as
valued policy. This value may not necessarily be the actual value of the property. In the
event of toss by fire the insurer pays the admitted value of the property.
2. Unvalued policy

An unvalued policy in one in which the value of the subject matter is not declared at the
time of policy taken. But in case of loss the value is computed by assessment. This is also
called an open policy.

3. Specific policy

In case of specific policy, the property is insured for a definite sum. If there is loss, the
stated amount will have to be paid to the policyholder. But the actual value of the subject
matter is not considered in this respect. For examples if a policy is taken for Rupees
20,000 upon a building whose actual value is Rs.1, 00,000 and afire occurs causing the
amount of loss Rs.20, 000. The insurance company will pay the whole amount of loss of
Rs.20, 000 irrespective of the fact that the building was insured for one-fifth of its value.

4. Average policy

An average policy is one which contains the average clause. This clause required the
insurance company to pay only that portion of the loss which is borne by the insured
amount to the actual value of the subject matter of the insurance. For example a value of
the property is Rs.1, 00,000. It is insured for Rs.60, 000 (60% of the total value) and the
amount of loss is Rs.60, 000. The insurance company will not pay Rs.60, 000 to the
policyholder but will pay Rs.36, 000 (60% of Rs.60, 000).

5. Floating policy

A floating policy is that which covers the fluctuating risk of several goods lying in
different localities for supply to various markets. Such a policy is usually taken out under
one sum and one premium by the businessman whose goods are lying at docks and
warehouses.

6. Stock declaration policy

This policy is taken for covering the stock where great fluctuations in the value can
happen throughout the contract period. On such policy 75% of the premium has to be
deposited in advance. The maximum liability of insurance company is specified in the
policy by the insured. At the end of year the average stock and final premium is
calculated.

7. Loss of profit policy

Such type of policy covers the loss of profit which sustains as a result of fire. This policy
is also known as consequential loss policy.

8. Standard fire policy

This policy is issued for compensation of all direct loss or damage caused by lighting and
burning. Such policy also covers damages by earthquake, hair flood, explosion, cyclone
and riot.

9. Reinstatement policy

Under this policy insurance company pays more than the actual value of the property
destroyed by fire in order to cover the cost of replacement of the said property. It is also
called as ―Replacement Policy‖. This type of policy is not very common in these days.

10. Schedule Policy

A schedule policy is one which insures many properties under collective terms and
conditions, Details of the properties and their respective rates of premium are listed in
one policy only for the convenience of the insured.

11. Sprinkler leakage policy

This type of policy covers the loss of building as a result of the damage by the leakage of
liquid or water.

12. Excess policy

This policy is issued for the stock of merchandise whose value is constantly fluctuating.
In such case it is not suitable to take one policy for certain sum. So the insured takes an
ordinary policy for minimum value of the stock and excess policy for excess value of the
stock. The actual value of the stock will be reported periodically
13. Maximum value with Discount policy

Under this policy one third discount of the premium paid is refundable to the insured at
the maturity of the policy. This policy covers the risk for maximum amount.

Importance Of Fire Insurance

Fire insurance is the type of insurance coverage, in which an individual pays some sum of
money to the company, in exchange to receive advantages for the fireplace losses.
Fire insurance provides the security for home, share, home furniture, enterprise buildings,
etc,. Fireplace insurance provides the price of alternative of properties and assets, which
gets broken due to the fireplace incident.

Fire insurance provides the advantages for the homeowner in these ways
It provides the price of damage for the building
It provides the rc, if any home furnishings are damaged due to the fireplace
incident, like plywood home furniture, carpets, clothes.
It provides alternative or maintenance price for the electronic items, which is
broken due to fireplace, like television, computer, air coolers.

Fire insurance provides advantages to the enterprise in the following way

It covers the price of share broken due to the fire

It provides the loss of life advantages to employee, in case of loss of life occurred
due to the fireplace incident.

It provides the alternative or maintenance price for the machines, if they get
broken due to fireplace incident.
It provides the medical expenses for the employees, if they get injured due to the
fireplace incident.

The expectations of living have definitely modified with the times and this only indicates
that more people look for any paths that can lead to benefits. With there being so many