Fire insurance policies are an essential component of risk management for businesses in India. They provide financial protection to policyholders in the event of a fire-related loss or damage to their property. However, it is crucial to understand the conditions of the policy before purchasing one. In this blog, we are going to discuss all the conditions included in a fire insurance policy. After going through this blog, you will be able to make informed decisions regarding a fire insurance policy that suits your needs the most. 

Here we go!

Eligibility Criteria for Fire Insurance

To be eligible for fire insurance, the insured property must meet certain criteria. The following are the general eligibility criteria for fire insurance in India:

  1. Ownership of the Property: The property must be owned by the proposer or by someone who has an insurable interest in the property. The insurable interest could arise from ownership, possession, or any other legal relationship.
  2. Type of Property: Fire insurance policies are available for various types of properties, including commercial, and industrial properties. The type of property determines the premium rates and coverage limits.
  3. Age and Condition of Property: The age and condition of the property are important factors in determining the eligibility for fire insurance. Older properties or properties in poor condition may be considered higher risk and may require higher premiums.
  4. Location of Property: The location of the property is also an important factor in determining eligibility. Properties located in areas prone to natural disasters or with a high crime rate may require higher premiums.
  5. Compliance with Safety Regulations: The property must comply with safety regulations and must have adequate fire safety measures in place. Non-compliance with safety regulations may result in the rejection of the insurance application.

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Scope of Coverage in a Fire Insurance Policy

  • Standard Fire and Special Perils

The Standard Fire and Special Perils ( SFSP) insurance policy in India covers losses or damages caused due to fire, lightning, explosion, implosion, aircraft damage, riot, strike, terrorism, storm, cyclone, flood, inundation, earthquake, and subsidence. The policy may also include cover for damage caused by impact damage, bursting or overflowing of water tanks, apparatus, and pipes, and damage by missile testing operations. However, it is important to note that the coverage may vary depending on the policy and the insurance company. Some policies may exclude certain perils or may provide cover for additional perils as add-ons.

  • Add-On Covers

In addition to the standard fire and special perils coverage, insurance companies in India offer add-on covers to provide more comprehensive protection to policyholders. Some of the popular add-on covers include:

  • Burglary and theft cover
  • Machinery breakdown cover
  • Business interruption cover
  • Loss of rent cover
  • Personal accident cover for employees

Policyholders can choose to include these add-on covers in their policy for an additional premium. It is important to carefully read the policy documents and understand the coverage provided by the add-on covers before purchasing them.

Overall, the scope of coverage provided by fire insurance policies in India is comprehensive and can be customized to meet the specific needs of policyholders.

Exclusions in Fire Insurance

Fire insurance policies in India come with certain exclusions that policyholders should be aware of. These exclusions specify the circumstances under which the insurance company will not provide coverage. Some of these are as follows-

  • War and Nuclear Risks

Most fire insurance policies exclude coverage for damage caused by war, invasion, acts of foreign enemies, civil war, rebellion, revolution, insurrection, military or usurped power, or nuclear risks. This means that if the property is damaged due to any of these reasons, the policyholder will not be able to make a claim .

  • Electrical Breakdowns

Electrical breakdowns are another common exclusion in fire insurance policies. This exclusion applies to damage caused by electrical appliances, machinery, or installations. If a fire is caused by an electrical breakdown, the policyholder will not be eligible for compensation.

  • Theft During or After an Incident

Fire insurance policies do not cover losses due to theft during or after a fire incident. This means that if the property is damaged by fire and subsequently stolen, the policyholder will not be able to make a claim for the stolen items.

It is important to note that these exclusions may vary from one insurance company to another. Policyholders are advised to carefully read and understand the terms and conditions of their policy and seek clarification from their insurance provider if they have any doubts.

Other Policy Conditions

Fire insurance policies in India come with specific policy conditions that policyholders must adhere to. These conditions are put in place to ensure that policyholders are fully aware of their responsibilities and obligations under the policy. Some of such policy conditions are as follows:

  • Material Disclosure

Policyholders are required to make full and accurate disclosure of all material facts related to the property being insured. Failure to do so may result in the policy being voided, or the claim being denied. Material facts include any information that could influence the insurer's decision to provide cover or the terms of the policy.

  • Duty of Care

Policyholders have a duty of care to take reasonable steps to prevent loss or damage to the insured property. This includes ensuring that the property is adequately secured, maintained and protected against any foreseeable risks. Failure to take reasonable care may result in the policy being voided or the claim being denied.

  • Warranties and Compliance

Fire insurance policies in India often come with warranties and compliance requirements that policyholders must comply with. These may include requirements related to the installation of fire safety equipment, the storage of hazardous materials, or the maintenance of the property. Failure to comply with these requirements may result in the policy being voided or the claim being denied.

It is important for policyholders to fully understand the policy conditions before taking out a fire insurance policy in India. By doing so, they can ensure that they are fully compliant with the policy conditions and avoid any potential issues in the event of a claim.

  • Renewal Process

Fire insurance policies in India are generally valid for a period of one year, after which they need to be renewed. The renewal process is usually initiated by the insured, who needs to submit a renewal application along with the requisite premium before the expiry of the policy. The insurer may also issue a renewal notice to the insured, reminding them of the upcoming expiry of the policy.

  • Cancellation by Insured

If the insured wishes to cancel the policy before the expiry date, they need to provide a written notice to the insurer. The insurer may refund a portion of the premium based on the time remaining on the policy. However, if the policyholder has made any claims during the policy period, the insurer may not provide any refund.

Cancellation by Insurer

The insurer may also cancel the policy before the expiry date if the insured has violated any of the terms and conditions of the policy. The insurer needs to provide a written notice to the insured, stating the reason for cancellation. The insurer may refund a portion of the premium based on the time remaining on the policy. However, if the cancellation is due to the insured's negligence or intentional act, the insurer may not provide any refund.

It is important to note that the insurer cannot cancel the policy without providing a valid reason and giving the insured adequate notice. The insured also has the right to appeal the cancellation decision if they believe it is unjustified.

Frequently Asked Questions

  1. What is a Valued Policy in Fire Insurance?

A valued policy is a type of policy where the value of the insured property is predetermined and agreed upon by the insurer and the policyholder at the time of policy issuance. The premium for this type of policy is calculated based on the agreed value of the property insured. In case of damage or loss due to fire, the insurer will compensate the policyholder up to the agreed value of the property.

  1. What is a Floating Policy in Fire Insurance?

A floating policy provides coverage for a group of properties that are not specifically identified at the time of policy issuance. The premium for this type of policy is calculated based on the total value of the group of properties insured. In case of damage or loss due to fire or other perils, the insurer will compensate the policyholder up to the sum insured.

  1. How is Premium Calculation done in Fire Insurance?

The premium for a fire insurance policy in India is calculated based on the value of the insured property. The value of the property is determined by the reinstatement value, which is the cost of reconstruction of the property in the event of damage or loss. The policyholder needs to provide an accurate value of the property to the insurance company to ensure that the premium is calculated correctly.

The premium for a fire insurance policy is also influenced by the risk factors associated with the insured property. The insurance company considers various factors such as the location of the property, the type of construction, the age of the property, and the occupancy of the property. If the property is located in an area prone to natural calamities such as floods or earthquakes, the premium will be higher.