Fire accidents are unexpected and can cause damage to homes or businesses therefore, the importance of fire insurance cannot be over emphasised. Fire insurance helps people rebuild their lives as soon as possible by providing financial resources to the people or businesses affected. Some of the features of fire insurance are related to what the insurance covers, the contents, which are similar to other forms of insurance and the different types of fire insurance policies.
Table Of Contents
What is fire insurance
Fire insurance is an agreement between an insurance company and an individual or company where the insurer agrees to compensate the policyholder in case of loss or damage due to fire. The policy holder can be an individual or a company. The policy holder pays premiums to the insurance company on a regular basis for certain period of time in exchange for compensation in the event of loss of property due to a fire.
Insurable Interest
The first and foremost important feature of fire insurance is insurable interest. In fact, insurable interest is the basis of all insurance policies. It’s an object or property that if harmed or damaged will result in financial hardship for the policy holder. Insurable interest simply means that a policyholder will incur a loss if the insured property is to be lost. If there is no insurable interest the policy cannot be valued. The Insurance interest should exist both at the time of applying for fire insurance and at the time fire.
Indemnity
Another feature of fire insurance is indemnity. A fire insurance contract like any other contract of insurance is a contract of indemnity. The insurer is liable only to the extent of the actual loss suffered. Also, losses are only compensated only if they result from fire. Like every insurance contract a fire insurance contract is a contract of good faith. Both the policy holder and the insurance company should disclose every relevant information known to them. The insurance policy is embodied in a fire policy. Such policies cover specific properties for certain period of time. Losses that have been deliberately caused by the policyholder are not compensated for. In such cases, the policy holder may be charged with criminal charges.
Limited Cover
The third feature of fire insurance is that the insurer will not be liable if the fire is caused by a riot, civil disturbances, war and explosions. Also, in some fire insurance policies the insurer does not cover the full value of a loss caused by fire. Some clauses state that a portion of the total loss of property has to be borne by the policy holder. This means that the insurance company will bear a proportion of the loss up to the sum insured.
Payment of Claims
Other features of fire insurance policies are the clauses they contain. These clauses state that in the event of a fire the insurance company should be notified immediately in order for the insurer to take the necessary steps to determine the extent of the loss.
Personal Insurance
A fire insurance is a personal contract between the policy holder and the insurance company. This is an important feature of fire insurance policies. Therefore, it is important for the insurance company to have all the information about the policy holder and the property being insured. If the property or goods being insured are moved to another person or to a third party without the knowledge of the insurer, the insurance company has the right to terminate the contract.
Description of Property
The correct description and valuation of the property should be given. This should be given with the correct address of the property. Any incorrect information may result in a claim getting rejected.
Types of policies
Under fire insurance there are different types of fire insurance policies. These different types of policies are another important feature of fire insurance. The major ones are, specific policy, valued policy, comprehensive policy, floating and replacement policy.
- Specific Policy
According to this policy, the loss of up to a specific amount of money which is less than the value of the property insured is covered. The actual value of the property is not taken into consideration when determining indemnity. If the insurer inserts an ‘average clause’ it means that the policy holder will bear a portion of the loss him/herself.
- Comprehensive Policy
Under this fire insurance policy, the insurance company covers fire, theft, burglary and profits that may be lost when a business closes due to fire. A comprehensive policy is known as the all in one fire insurance policy.
- Valued Policy
Under this policy the policy holder can only recover a fixed amount of money that is agreed upon at the time the insurance policy is taken. This means that only a fixed amount of money is compensated for in the event of a loss regardless of the actual amount lost.
- Floating policy
A floating policy is a fire insurance policy that covers properties or goods located in different places but under the same name and premiums. Such a policy is always subject to average clause.
- Replacement or Re – instatement policy
In this type of policy, the insurance company chooses either to pay cash for any property lost by fire or reinstate it. By reinstating, the insurer pays for the replacement of the property lost or destroyed by fire.
Types of properties covered
Other important features of fire insurance are concerned with the types of properties that are covered by fire insurance.
- All moveable and immovable property is covered under fire insurance. This includes but is not limited to buildings, (Both complete and incomplete, interior, partitioned and electricals. The value of land is not included in this case)
- Plant and machinery, equipment and accessories, (New and second hand, although this may differ with the type of policy. Some fire insurance policies cover obsolete machinery)
- Stocks (Finished, work in progress, and raw materials)
- Household goods, spares, cable piping, furniture, fixtures and fittings
Period of Coverage
The last feature of fire insurance is the period covered. Fire insurance is an annual policy that is renewable each year. In some countries, the period of cover can be extended to 3 years with discounted premiums.
