WHAT IS FIRE INSURANCE? EXPLAIN VARIOUS TYPES OF FIRE INSURANCE.
Ans. Unlike life insurance, fire insurance is a contract of indemnity and the insured cannot claim anything more than the value of the goods lost or damaged by fire or the amount of policy, whichever lower. A fire insurance contract may be defined as " an agreement whereby one party, in return for a consideration, undertakes to indemnify the other party against financial loss which the latter may sustain by reason of certain defined subject-matter being damaged or destroyed by fire or other defined perils up to an agreed amount". A claim for loss by fire must satisfy two conditions, (i) there must be actual fire, and (ii) fire must be accidental, not intentional. The cause of fire is immaterial for a fire insurance claim to be admitted. Unless the fire has been caused due to fraud or misconduct on the part of the insured, the loss due to fire caused by the negligence of the insured or his servants is covered by fire insurance.
Types of Fire Policies: The following types of fire policies are commonly used:
Read more :- DESCRIBE THE LIFE INSURANCE.EXPLAIN THE DIFFERENT TYPES OF POLICIES.
i) Valued Policy: It is a policy in which the value of the property is ascertained and for agreed upon and the insurer undertakes to pay his agreed value in the event of the destruction of property by fire. Such policies are not very commonly issued.
ii) Average Policy: An average policy is that which contains the average clause. The average clause in such a policy lays down that if the property is under insured, the insurer shall bear only that proportion of the actual loss as his insurance bears to the actual value of property at the time of loss. Thus, if a person insures his property for Rs. 15,000 while the loss is assessed at Rs.8,000 and the market value of the property at the time of loss is Rs.20,000 the claim will be settled at Rs 6,000. i.e [15,000/20,000] 8,000. Obviously, in the case, the insured is penalized for under- insurance, for he has to bear Rs.2, 000 of the loss of Rs.8, 000 himself.
iii) Specific Policy: A specific policy is that which insures a risk for specific sum. In case of any loss to the property insured under such a policy, the insurer will pay the whole loss of the insured provided that it does not exceed the specified sum mentioned in the policy. The value of the whole property is not considered for this purpose. Thus, if a building worth Rs 1,00,000 is insured against fire for Rs.50,000 while the damage to the property is assessed at Rs. 30,000 the assured will get the whole loss, viz., Rs.30,000 made up by the insurance company.
iv) Floating Policy: A floating policy is that which covers one or several kinds of goods lying in different localities under one sum and for one premium. The premium charged under such a policy is generally the average of the premia that would have been paid if each lot of the goods have been insured under specific policies for specific amounts.
v) Excess Policy: When the stock of a merchant fluctuates, he may take out a policy for an amount below which his stocks do not fall and another policy to cover the maximum additional amount by which the stock may rise at times. The first policy is called the 'First Loss Policy' and the second 'Excess Policy'. If a merchant's stock varies between Rs. 1,00,000 and Rs. 1,50,000, he may take the first loss policy for Rs. 1,00,000 and an Excess Policy for Rs.50,000.
vi) Blanket Policy: It is issued to cover all assets fixed as well as current - of the insured under one insurance.
vii) Comprehensive Policy: Such policies are generally issued to cover such risks as fire, explosion, lightning, thunderbolt, riot, civil commotion, strikes, burglary, loss of rent upto a certain limit, etc. These are also called 'All Insurance Policies'.
viii) Consequential Loss Policy: The purpose of this type of policy is to indemnify the insured against the loss of profit caused by any interruption of business by fire. It is also called 'Loss of Profit Policy'.
ix) Reinstatement Policy: Under such a policy, the insurer pays the amount which is required to reinstate the asset or property destroyed. Thus, in calculating the amount of claim, depreciation is not deducted from the original value of the asset