Fire insurance

Fire insurance is a mechanism of insurance contact that compensates against the destruction of property by fire. It is a contact where by one party (insurer), in return for a consideration, undertakes to indemennify up to an agreed amount the other party (insured) against property losses caused by fire or other defined perils. The property that can be covered under fire insurance policy are: building and their contents such as machinery, equipment,accessories,furniture and goods such as raw materials, semi-finished goods, finished goods, packing materials stored in the factories and godowns, and electrical installations of a building etc.

In the contract, the insured pays a fixed rate of insurance premium to insurer to ensurer financial security aainst the events of fire.once the premium is paid, the fire insurance contract is in effect for one year and it has to be renewed every year by paying further premium to keep in effects thereafter. The major features of fire insurance are as follows:

·         It is a contract between the owner (insured) of the property and the insurance company (insurer).

·         Th insured pays the premium (considration) to get the property insured.

·         The insurer gurantees to make up the loss in case the property is damaged by fire or any other dfined peril.

·         The fire insureance contract is genrally valid for one yar and must be renewed very yars to brin in ffect thereafter.

Types of fire insurancre policies

The fire insurance policies can be of diffrent types. They are discussed in the following section:

1.       Valuable policies

2.       Valued policies

3.       Specific policy

4.       Floating policy

5.       Average policy

6.       Excess policy

7.       Declaration policy

8.       Adjustable policy

9.       Reinstatement policy

10.   Maximum value with discount policy

1. Valuable policy

Under this policy the claim against demaed property is determined at the market price. In other words, the amount of claim is not fixed in advanced. It is deteermined on the basic of prevaling market price of damaged property at the time of loss.

2.Valued policy

Under this policy the claim is fixed at the time of risk. In other words, a fixed insured sum is agreed between insurer and the insured. When the l,oss of property occurs by fire, the insurer sum to the policy holder irrespective of the market value of property damage or actual loss.

3.Specific policy

Under this policy the specific amount of insurance policy is fixed for specified property. Upon loss of the specified property, the inhsured is compensated actual loss of the maximum of insured sum. The means, if the actual loss is greater than the insured, the claim is satisfied only to the extent of the insured sum.

4.Floating policy

This policy is designed to cover risk of loss by fire against one or more kind of property at one time under signal sum assured for a single premium paid and in relation to the same owner of the property. When property or goods are located at different places, the insured can purches a singlee floating policy to cover the risk to all types of goods at different palces.

5.Average policy

This policy contains the 'average clause' which spells out that thee insured is compensated for the actual loss in the ratio that insured sum bears to the valuee of the property. If the sum insured is than value of thee property, the insured is allowed compensation in the ratio of of insured sum to the value of the property. For examples, if value of the property is rs 40,000 and the insured sum is only rs 20,000, the ratio of insured sum to value of property is 50 percent. The insured is paid only 50% of the actual loss in the event of destruction by fire.

6.Excess policy

The level of stock fluctuates in a business. In such case, it is difficult to take the policy of fixed amount. If policy is takenh for higher amount, the amount of premium will be higher, and if th policy is taken for lower amount ,the insured may have to bear proportionate loss as in the case of average policy. In such circumstance, the insurd may take two policy- one is called first loss policy and another is called excess policy. Certain minimum level -of stock is determined and the first policy is taken to cover the risk on this minimum lvel of stocks. Every month stock level is declard and the excess is taken to cover the risk of loss on the stock in excess of minimum level.

7.Declaration policy

Undr this policy, the insured for maximum amount that he/she consider would be at risk during the period of the policy. Then insurance declare the value of property in a specified date every month, and premiumis paid provisionally to the extent of 75 percent of annual premium then actual annual premium is determined in the average of every decelaration. If actual premium paid is less than this premum, the insured has pay further premimum to the insurer. In contract, if actual premium paid is greater, the insured will be refunded back the excess premium paid.

8.Adjustable policy

In this policy, the premium is adjustable accordin to the change in stock lvel. This policy is first issued undr definite trms on the existing stock and premium is paid for that.Then every month, the level of stock is vrified. When there is variation in the stock, the insured informs the insurer. Upon the receipt of information, th insurer adjust the amount of premium on pro-rata basis. The policy amount may change from time to time and adjusted accordingly.

9.Reinstatement policy

Under this policy, the amount of compensation is provided  to the extent that is required to reinstate the property lost by fire to new condition irrespective of its value at time of loss.For examples, in the event of destruction of building by fire, claim issettled to the amount reguired to rebuild the building . Similarly, if insured machine is compeletely destroyed by fire, claim is provided to the extent it reguires for replacement by similar machinary.

10.Maximum value with discount policy

Under this policy, the maximum amount of policy is taken without having required to declare or adjust the policy. The full amount of premium is paid at thee time of commencement of risk.In the event of no loss, thne insureed is refunded back one- third of premium paid. This policy is similar to the decleration policy to cover for maximum loss but does not require checking and recording declaration.