Fire Insurance Policies – Detailed Notes
Introduction
Fire insurance covers loss or damage to property due to fire. It is important to have a clear
understanding of different fire insurance policies available in the market to ensure proper
protection and claims.
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1. Valued Policy
A policy where the value of the insured item is agreed upon at the inception of the policy.
The insurer pays the agreed amount in case of a total loss, regardless of the market value at
the time of loss.
Mainly used for insuring items whose market value is difficult to ascertain (e.g., artwork,
antiques).
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2. Valuable Policy
A policy where the actual loss is assessed at the time of the event.
Compensation is based on the real value of the loss, not the insured sum.
Unlike valued policies, there is no pre-agreed value; market value determines the claim.
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3. Specific Policy
Insures a specific sum for a specific property.
The insured gets the lesser of the actual loss or the sum insured.
Example: If the insured value is ₹80,000 and the loss is ₹60,000, the insurer pays ₹60,000.
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4. Floating Policy
Covers goods lying at different locations under a single sum insured.
Useful for businesses dealing with stock at multiple places (e.g., warehouses, factories).
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5. Average Policy
Includes an 'average clause'. If the property is underinsured, the claim is proportionately
reduced.
Formula:
Claim = (Insured Value / Actual Value) × Loss
Example:
Insured Value: ₹80,000
Actual Value: ₹1,00,000
Loss: ₹50,000
Claim = ₹40,000
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6. Excess Policy
Covers losses beyond a certain limit.
Comes into effect after the base policy limit is exhausted.
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7. Declaration Policy
For goods with fluctuating value (e.g., stock), the insured declares value monthly.
Premium is based on average declared value.
Final settlement is calculated using the average of monthly declarations.
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8. Adjustable Policy
Similar to a declaration policy but with provisions to adjust sum insured and premiums.
Premium is adjusted based on actual stock at risk.
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9. Reinstatement Policy
Instead of paying for loss, the insurer reinstates the property to its original condition.
The sum insured must reflect current replacement value.
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10. Comprehensive Policy
Covers multiple risks in addition to fire (e.g., theft, burglary, riot, explosion).
Broader coverage than standard fire policy.
Ideal for businesses or individuals seeking wide protection.
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11. Consequential Loss Policy
Covers loss of profit or income resulting from fire.
Includes fixed expenses, net profit, standing charges.
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12. Sprinkler Leakage Policy
Covers loss or damage due to accidental water leakage from sprinklers.
Useful where automatic sprinklers are installed.
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13. Transit Policy (Goods-in-Transit Policy)
Covers goods against fire and related risks during transit.
Used by traders and transporters.
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14. Builders' Risk or Construction Policy
Issued for buildings under construction.
Covers fire and other related risks during the construction phase.
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15. Floating Policies in Warehouses (Floater Policies)
Provides cover for goods stored in multiple warehouses.
Sum insured is common for all locations.
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16. Maximum Value with Discount Policy
A policy with a fixed maximum cover and discounts on premium.
Ideal for traders with seasonal variations.
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17. Blanket Policy
Insures multiple items or properties under one policy.
Premium is calculated on overall risk.
Used by businesses with multiple branches or properties.
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18. Rent Policy
Covers loss of rent when a rented property becomes unusable due to fire.
Ensures landlord gets rental income during repair/reconstruction.
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