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Fire Insurance

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Main elements of Fire insurance contract - definition

Fire insurance is contract where the insurer undertakes to pay the insured in case of damage caused by fire. To claim fire insurance two conditions need to be met. There must be actual loss due to fire and the fire must must be accidental.

The main elements of a fire insurance contract are:

(i) In fire insurance, the insured must have insurable interest in the subject matter of the insurance. Without insurable interest the contract of insurance is void. In case of fire insurance, unlike life insurance insurable interest must be present both at the time of insurance and at the time of loss.

(ii) Similar to the life insurance contract, the contract of fire insurance is a contract of utmost good faith i.e., uberrimae fidei.

(iii) The contract of fire insurance is a contract of strict indemnity. The insured can, in the event of loss, recover the actual amount of loss from the insurer. This is subject to the maximum amount for which the subject matter is insured.

(iv) The insurer is liable to compensate only when fire is the proximate cause of damage or loss.

Types of Fire Insurance Policies - definition

1. Valued Policy: This is a type of policy where the value of the subject matter of Insurance is agreed upon at the time of making the contract. The insurer has to pay a specied amount or value irrespective of the amount of loss caused due to re. Valued policy is taken for those goods whose value becomes difficult to calculate in case of loss by fire. This types of policy can be taken for art work, paintings, etc where the value of the damaged articles  become difcult to assess/measure.
2. Average Policy: It is a policy which contains an average clause. If the subject matter is not insured as per the exact market value or  undervalued, then the insurer is liable to pay that percentage of the loss for which it is insured. e.g. If a policy is taken for Rs 50,000 against the market value of Rs 100,000, the loss incurred due to re is Rs 40,000, then the insurance company will pay Rs 20,000 (50% of Rs 40,000).
3. Specic Policy: In case of a specic policy, the property is insured for a denite sum irrespective of the market value. If there is a loss, the stated amount will have to be paid to the policy holder. But the actual value of the subject matter is not considered in this respect. e.g. A property of value Rs 100,000 is insured for Rs 60,000 and the loss due to re is Rs 30,000 then the insurance company will pay Rs 30,000 in full as compensation.
4. FIoating Policy: This policy can be taken for those goods which are lying in different localities or godowns or warehouses. Since the quantity of goods lying at different places uctuate from time - to time, it becomes difficult for the owner to take specic policy so businessmen and traders take uctuating policy. Such a policy is usually taken for one sum and one premium for goods lying at different places.
5. Comprehensive Policy: Comprehensive policy covers all types of risks like re, burglary, riots, explosion, strikes, etc. This policy is also called as all-in-one policy. This type of policy is not popular in India but very popular in the countries like UK, USA, etc.
6. Excess Policy: Excess policy is taken when the value of the stock in the market constantly uctuates In such an instance it is not advisable to take one policy of certain sum, but instead two policies can be taken.
i. One policy is for a minimum amount below which value of the stock never falls.
ii. Another policy for a difference/excess amount (for a maximum amount of stock) by which price uctuates. e. g If the value of stock ranges between Rs 100,000 and Rs 130,000, then one policy is taken for Rs 100,000 and another policy for excess amount i.e. Rs 30,000.
7. Reinstatement Policy: This is a type of Fire Insurance Policy where the insurer undertakes to replace the property or goods lost by re. In this policy instead of paying compensation for the property lost by re, the property is replaced. While paying compensation, the depreciation amount of the property is not taken into consideration. The rate of premium is higher in Reinstatement Policy.
8. Blanket Policy: Blanket Policy covers all xed and current assets of the assured in one policy. Under this policy all the assets lying at different places are covered under one premium and one policy.

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