Property Insurance

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The purpose of a fire insurance policy is to offer you financial coverage in case of loss or damage due to fire and related perils. At the time of taking a fire insurance policy, you would have to compute the price of the items which you want to cover. However, the prices of these items can fluctuate over the years due to the impact of the inflation. To combat such issues, it is advised to go with an excess policy in fire insurance, which is bought to cover additional risks which are beyond the cover of the first fire insurance policy.

It is a very useful feature which can be considered by those people whose stock fluctuates from time to time. In this case, the first loss policy is bought for the minimum stock value, and an additional excess policy is purchased to cover an anticipated fluctuation in the price of the stock.

Every month, it is necessary to declare the actual value of the stock and the premium would be computed on the basis of the average monthly excess amount.

As the chances of paying the excess amount are few, the fire insurance policy premium rate is also very low. It means the policyholder would be paying a nominal premium amount as compared to the total premium payable if the fire insurance policy had been specific in nature.

Case: 1

After running his footwear business from home, itself, Ravish Shukla took an office space on lease in Pune. Along with equipping his office space with fire extinguishers, etc.; Ravish also decided to buy a fire insurance policy for his office space. To ensure the sufficient coverage, he calculated the cost of all the items and purchased the fire insurance accordingly. He also got his footwear stock included in the fire insurance policy. At the time of buying a fire insurance, Ravish also discussed the provision of excess with the insurance company and purchased it after paying a nominal premium amount.

Read More: What is the Scope of Fire Insurance Policy?

Last year, Ravish’s office caught fire due to short-circuit. Though, firefighters immediately doused the flames, the goods worth Rs 20 lakh got damaged. As Ravish had a fire insurance policy, he approached the insurer for the claim settlement. In this case, the insurer appointed a surveyor who visited the office space to calculate the extent of damages.

Once the survey was done, the insurer submitted its report on the basis of which the fire insurance company agreed to settle the claim. As the fire insurance coverage was of Rs 50 lakh, the insurer settled the claim accordingly.

Here it is important to note, Ravish had bought an excess policy in fire insurance. It means, at the time of buying the insurance, the value of the stock was Rs 5 lakh, which increased to Rs 10 lakh over the years. As the value of the stock was more than what it was at the time of purchasing the fire insurance, the insurer considered the fluctuation in the price of the stock and settled the claim accordingly.

Case: 2

Jyoti has been in the fashion business from the last five years. She is a leading exporter of fashion jewellery to countries like Malaysia, Sri Lanka, etc. To protect her business and herself from various losses and damages, she purchased a fire insurance policy as well. Before issuing the policy, the insurer asked for the cost of the items and then issued the fire insurance policy accordingly. At the time of policy issuance, the insurer recommended her to buy an excess policy in fire insurance, however, she refused to do so.

Read More: How Do the Insurance Principles Apply to Fire Insurance Contracts?

Sadly, a fire broke out at her office space and damaged goods worth Rs 5 lakh. As she had a fire insurance policy, she approached the insurer to get her claim settled. Here the insurer appointed a surveyor to inspect and ascertain damages. The loss was found out as Rs 6 lakh. Unfortunately, there was a rise in the price of goods at the time the insurance was purchased, however, Jyoti had not bought the excess policy in the fire insurance and as a result, the insurer settled her claim as per the price of the goods which was mentioned in the policy document at the time of purchasing the fire insurance.

If Jyoti had bought an excess policy in fire insurance, she would have got her claim settled as per the new price of the items.