Fire Insurance

What is Fire Insurance?

Fire Insurance is a type of insurance that provides a coverage against loss or damage to the property caused due to fire. Basically, it’s an agreement between two parties, insurer and the insured, wherein insurer indemnifies to pay for the cost of loss or damage caused to the insured’s property due to fire for a specific period. Apart from insured property, it also covers personal property, nearby structures and expenses of people whose daily livelihood has been affected due to damage caused by fire.

Am I Eligible to Apply for Fire Insurance?

Yes, any individual/organization/firm/an institution who legally owns/possesses the property can apply for fire insurance to protect it against the risk of fire by way of ignition, lightening, electricity, explosion of gas, natural disasters etc. Eligible person or entities are broadly categorized as-

• Owners of the building and the content inside the building such as furniture, house hold objects etc
• Shopkeepers
• Service providers such as hospitals, clinic, diagnostics, hotels, lodgings etc
• Research centres and educational institutions
• Manufacturing companies
• Financial institutions, mortgagors, lessor etc
• Charitable trusts and trustees
• Transporters
• Godown keepers
• Traders in stock

What Kind of Properties are Eligible for Fire Insurance?

Any property that you own for residential, commercial, warehousing and industrial purposes along with the content of the property can be insured under fire insurance policy. It basically includes-

• Buildings
• Contents of insured buildings such as plant and machinery, equipment and accessories, house hold anticraft and furniture etc
• Goods in factories (raw materials, finished goods, semi-finished goods, goods in trade etc), goods kept in open and godown stocks etc
• Electrical installation in buildings
• Pipelines located inside and outside the compound
• Fixtures and Fittings etc
• Valuables and precious metals

How are the Properties Valued?

‘sum insured’ is the most important aspect in any type of insurance. In case of fire insurance, valuation is done based on type of properties insured. Most of them are valued based on either market value (Cost after factoring in inflation and depreciation) or reinstated value (cost after factoring in inflation but without depreciation). Here are how properties are valued-

• Building: A building which is already constructed is valued based on the market value or based on reinstatement value. In case, building is still under construction, only material and labour cost will be estimated for valuation.
• Stock in Trade: Stocks and stocks in trade are valued based on the market value.
• Plant and Machinery: Valuation of plant and machinery is done based on market value, be it a new or used.
• Furniture, Fixtures and Fittings: Valuation is done based on either market value or reinstated value

Precious metals and any other items are valued based on agreed value between both the parties.

If I have availed fire insurance from two different companies, can I benefit from both?

Yes, but proportionately. When the same property and the peril is insured through multiple policies, the total loss payable is divided among the insurers proportionately as per the contribution agreement. Multiple policies are usually bought for the high valued property. In such cases, each insurer compensates the loss only up to the applicable limit as per the contribution agreement. It’s important to note that, you will be able to receive the total claim benefit only up to the extent of loss faced, even if you have availed multiple policies for the same peril.

How is the maximum limit calculated?

Maximum limit is the maximum amount of coverage or financial protection that can be given to insured at the event of loss/damage. Maximum limit is calculated based on total valuation of the properties covered under the plan on the date of proposal. Maximum limit should ideally represent the actual value of the property to be insured. It can be calculated by valuating the property in either of the two ways mentioned below –

• Market Value clause: Under this maximum limit is calculated as Estimated cost of material and labour+ Inflation factor for the policy period - depreciation
• Reinstatement Value Clause: Under this clause, maximum limit is calculated as estimated cost of material and labour + suitable inflation for the policy period

Any other asset which cannot be valued on above basis, sum insured is mutually agreed by both the parties, insured and insurer. This is also called as policy on agreed value basis.

What is the extent of period for a fire insurance policy?

Fire insurance policies are annual policies which can be renewed every year. There are also long-term policies with the duration of 3 years and more to specifically cover ‘’dwellings’’.

How can I view the terms and conditions for this policy?

Terms and conditions of the policy vary among insurers. Most of the policy inclusions and exclusions are available in their website under the product disclosure details. Read through the fire insurance policy document for the complete details on terms and conditions of the policy, its extent of coverage, exclusions and various clauses applicable.

Can the policy be cancelled mid-term? If I cancel the policy will I be eligible for a refund?

The fire insurance policy can be cancelled at any time by the insured and by the company. In case, you as insured opt for mid-term cancellation with written request to the insurer, refund will be made after the retention of customary short-period rate. However, in case of any claims already made, you will not be eligible for any refund.

Is there a maximum claim amount in fire insurance?

Yes. There is a maximum claim amount in fire insurance. Basically, maximum claim amount is the amount agreed by both insured and insurer at the time of entering in to the insurance contract. This means, insurer is liable to pay only up to the extent of maximum claim amount fixed under the contract even if the actual loss is exceeding the same.

What aspects should be taken into consideration before availing a fire insurance policy?

Below are some of the key aspects to be considered before availing fire insurance policy-

• Always ensure to insure the property for 100% of its value. That means, sum insured of the policy should represent the actual value of the property on the day of proposal.
• Get the valuation of insured property done each year, so that coverage requirement can be assessed and adjusted accordingly
• It’s better to get the valuation done from independent appraiser rather than relying on any other source.
• Know the difference of actual cash value and replacement value of the property and decide the sum insured accordingly. You may have to pay more premium for fire policy that considers replacement value.
• Certain properties like jewellery, valuable documents and certain types of stocks may need separate coverage. Keep that in mind.

What are the different types of policies available in the market?

Below are the different types of fire insurance policies available in the market:

• Specific Policy: This policy provides a coverage only up to specific amount. That means, sum insured in this is less than the actual value of the property.
• Comprehensive Policy: It’s a complete package, which covers risks like earthquake and third-party risks etc along with fire risk. It’s basically the fire and special perils insurance with suitable add-ons.
• Floating Policy: Basically, these policies provide coverage for stocks kept at various locations under one sum insured for one premium.
• Agreed value Policy: In this, both insurer and insured enter into insurance agreement at mutually agreed value. In the event of loss, insurer is liable to pay the agreed value irrespective of the amount of actual loss
• Reinstatement Policy: Under this, insurer compensate based on market value of the property.

What kind of losses are covered under a fire insurance?

Perils covered under fire insurance are-

• Fire
• Explosion and implosion
• Riot, Strike and Malicious Damage
• Terrorism
• Aircraft damage
• Impact Damage
• Impact Damage
• Bursting or overflowing of water tanks
• Storm, cyclone, typhoon, hurricane, tempest, flood, tornado and inundation
• Bush Fire

What is covered under fire and special perils insurance?

Perils covered under fire and special perils insurance are –

• Fire
• Explosion
• Lightening
• Damage to aircraft
• Riot, strikes and malicious damages
• Impact by road/rail vehicle or animals of third party
• Storm, Tempest, Flood and Inundation
• Leakage due to installation of automatic sprinkler
• Landslide and Rockslide
• Bursting and overflowing of water tanks
• Damages due to pollution and contamination
• Bush Fire
• Missile testing operations
• Interruption or loss of profits

There are many other perils like loss due to earthquake, loss of rent. Start-up expenses etc that can be covered by opting for separate add-ons with some extra premium.

What kind of properties are specifically not covered under fire insurance?

All kinds of movable and immovable properties (except the ones that are in transit) of the proposer are covered. Properties covered are broadly classified as –

• Building (both completed and under construction) including the content of the building such as electricals, partitions and interiors etc. However, value of the land is not considered.
• Plant and machinery (new, second hand). Obsolete machinery is also covered under the policy.
• Accessories and equipment’s (both new and second hand)
• Stocks (includes raw material, semi-finished goods, finished goods and goods in trade)
• Specific items such as precious metals, articles and documents etc

Apart from fire, what other perils are covered under fire insurance?

Apart from fire related accidents, fire insurance policy also covers below perils

• Lightening: Broken roof and Cracks caused due to lightening
• Explosion/Implosion: Policy covers any damage caused due to explosion and implosion
• Riot, strike, malicious and terrorism: any damage to the property due to these activities are covered
• Impact Damage: Impact by any third-party vehicle and an animal or by road/rail.
• Aircraft Damage: Any damage caused to property by aircraft directly or by the articles dropped from it are covered
• Storm, cyclone, tempest, typhoon, tornado, flood, hurricane and inundation
• Subsidence, landslide and rockslide
• Bursting or overflowing of tanks
• Bush Fire

Does Standard Fire and Special Peril Insurance cover loss from theft and burglary?

No. Standard Fire and special peril insurance policy does not provide any cover for losses due to theft and burglary.

What kind of costs comes under start-up expenses?

Start-up expenses in fire insurance basically are referred as the cost that needs to be incurred for starting the business again after damage or destruction of business premises. For example, site selection cost, site improvement expenses, legal work, brochures and logo design, research expenses, advertising and promotion cost, equipment and supplies etc.

Is the expense from debris removal covered under fire insurance?

Basic fire insurance policy does not provide any coverage for expenses incurred for debris removal. Cost involved in removing debris from insured property, as by an explosion or windstorm are not covered under fire insurance plan even if the debris are removed without making any damage to the property. However, coverage for cost of debris removal can be availed as an add-on by paying extra premium under standard fire and special perils insurance policy. Add-on cover also provides only certain percentage of debris removal cost as a coverage.

Are items like jewellery, works of art and precious jewels covered under general fire insurance?

Yes. Items like jewellery, works of art and precious jewels can be covered under general fire insurance, if they are specifically mentioned to the insurer for coverage. Specific items such as unset precious stones, work of arts, manuscripts, securities, stamps, documents, paper money, specific electronics, jewellery etc are not covered under general fire insurance unless specifically mentioned. These items are prone to fraud and that is the reason they need separate coverage. Hence, it’s important to declare the each such specific items to get the coverage under fire insurance plan.

What additional covers are offered under Standard Fire and Special Perils Insurance?

Standard fire and special perils insurance provide additional coverage than a basic fire insurance plan which includes missile testing operations, leakage from automatic sprinkle etc. Below are some of the additional coverage that can be availed under the policy by paying some extra premium-

• Debris Removal
• Forest Fire
• Spontaneous combustion
• Earthquakes
• Loss of Rent
• Start-up expenses
• Terrorism cover
• Spoilage material damage cover
• Contamination cover
• Impact damage by insured’s own vehicle
• Alterations and extensions etc

When will I be able to renew my policy?

Fire insurance policy is generally for a period of one year. Policy can be renewed on completion of the contract period each year. At the end of the policy term annually, insurer will send out the renewal notice to insured. Usually, there will be a grace period of 14 days to renew the policy by paying the renewal premium.

What is the procedure for policy renewal?

Insurer sends an intimation two week before the policy expiry. There is also two weeks grace period given after the expiry to get it renewed. Here is the process to follow –

• Contact the insurer with renewal request
• At the time of renewal, check all the details and its correctness carefully.
• Make modifications such as any change in address and other details wherever required.
• Re-check the sum to be insured so that to have an adequate coverage for the renewed policy
• Re-verify and opt for additional coverage where ever required
• Make the stipulated premium payment for the renewal

Can I opt for different coverage on renewal?

Yes, you can opt for additional coverage for the risks not stated in the basic policy. Many insurers give you extension of coverage based on their underwriters review of the policy at the time of renewal. Your previous claim history and record will be reviewed before proving an extension on basic policy coverage. You need to make additional premium payment for availing the extension of coverage. Some of the extended cover that you can seek at the time of renewal are for start-up expenses, loss of rent etc

Are there any additional charges to be paid for late renewal?

No. There will not be any charges on renewal after the grace period. In case of fire insurance, renewal is as good as a new purchase. As an insured, you are entering into new contract with the insurer. If you do not renew your fire insurance policy before the grace period, you will not be covered for any losses you suffer. It’s better to act upon the renewal notice that you receive within the stipulated time. Coverage is offered only till the end of grace period.

What are the documents that need to be submitted for the renewal of policy?

There will not be any additional documentation for the renewal. Only renewal notice must be produced at the time of renewal. Renewal notice contains the terms and conditions and premium quotes for another year insurance. However, if you wish to make any changes such as address change or change of any other material details, relevant documents need to be submitted. Also, if you are opting for additional coverage, necessary documents as per the insurers requirement needs to be submitted. Renewal notice contains all the details and a note to insured stating that if there are any change in the risk, it needs to be informed to the insurer.

What are the documents required in case of a claim?

List of documents required for claiming the benefits under fire insurance policy depends on the nature of loss/damage. To make claims under the fire insurance policy, here are few of the common documents to be submitted to the insurer-

• Dully filled fire insurance claim form with all the details correctly mentioned
• A certified copy of the fire insurance policy allowing with its schedule and endorsements
• Enclose a copy of newspaper report on the occurred incident, if any
• Survey report provided by the internal committee on the observation made during investigation.
• Previous claim reports
• Photographs of damaged property

What are the additional reports required for fire claims?

Along with the documents mentioned above, here are few additional documents to be submitted for making the fire insurance claim-

• Survey report submitted by the internal committee stating the detailed observation in the investigation for the cause of peril
• Fire brigade report
• First Information Report from Police department
• Police panchnama or the endorsed letter of intimation to the police department about the incident
• Forensic reports from laboratory carried out based on the sample collected from the affected site
• Final Investigation report from the police department

What report will I need to prove a flood claim?

In case of flood claim, you need to produce meteorological report. Along with this report, you need to enclose dully filled claim form, copy of insurance policy, photograph of the property damaged, surveyor’s report on investigation, newspaper cutting in which flood incident is reported etc.

What kind of report is needed for an explosion claim?

To make explosion claim, report from director of Industrial Safety and Welfare or Factory inspector’s report is very much essential. Along with this all other common documents such as duly filled claim form, certified true copy of policy containing all schedules and clauses, newspaper report on the incident reported, photographs of the damaged property, Fire brigade report, surveyor report, final investigation report etc are to be enclosed for making the explosion claim under the fire insurance policy.

How do I make a fire insurance claim?

For making fire insurance claims, process can be followed in below steps-

• Place an immediate intimation to the insurer on the loss/ damage caused so that they depute a competent surveyor to reduce the extent of risk.
• Give all the details about the assets and properties destroyed or damaged along with the estimation in regards with the current market value as on date of loss
• Provide all the necessary details and documents to the surveyor for establishing the accountability and for assessment of extent of loss.
• Mention the details of all other insurance existing on the damaged property to the insurer at the time of estimating the loss
• Complete the claim formalities with submitting all the necessary documents along with the duly filled claim form.

In what cases can a claim be rejected?

Sometimes, Insurance company may not be able to honour the claim. Some of the most common cases in which a fire insurance claim can be rejected are-

• The loss or damage claimed for falls within a specific exclusion
• Lack of insurable interest
• If it is found that the insured property is not eligible for any type of coverage under the fire insurance plan
• Location where incident took place and damage occurred is not held covered under your fire insurance policy

If the amount of settled claim is less than the sum insured, is the policy still in force?

Yes. If the claim settlement amount happens to be less than sum insured, then policy stays in force for the remaining policy period.

In what cases is filing an FIR necessary?

Filing an FIR is necessary in case of fire insurance claims arising out of RSMD (Riot, Strike and Malicious Damage). In case of any destruction or damage caused by external violent means to the insured property, it’s important to lodge the FIR with police.