A fire insurance is a contract between a policyholder and the insurance company in which the insurer agrees to compensate the insured in case of loss or damage happens to a particular property due to fire. The premium is also pre-decided and the insurer compensates for the loss up to the insured amount only.

If you are also planning to buy a fire insurance policy, here are some of the important characteristics of the insurance contract –

  1. Insurable Interest – It is necessary for the insured party to have the insurable interest in the property for which he/she wants to buy insurance. With insurable interest, we mean, the policyholder is benefited by the survival of the insured things and suffers a loss in case of its destruction. Remember, the insurable interest should exist both at the time of buying the policy and at the time of filing a claim.
  2. Utmost Good Faith – A fire insurance contract is governed by the principle of utmost good faith that says it is necessary for the policyholder to disclose all vital points with regard to the subject-matter of the insurance policy so that the insurer can have a proper calculation with regards to the risks involved. The policyholder should give information pertaining to the environment, construction of the house, the possibility of catching fire, etc. The insurance company has all rights to terminate the contract if it finds that important points are not disclosed.

Similarly, it is necessary for the insurance company to give complete and honest detail about the insurance policy. There should be no hidden clauses or charges.

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  1. Contract of indemnity – The insurer will settle the claim only up to the insured limit. In case there is no loss, no claim is applicable.
  2. Personal insurance contract – As a fire insurance is a personal contract, the policyholder is involved with the property. As a result, it is necessary that the insurance company should have complete knowledge about the behavior of the policyholder. Moreover, the policyholder can’t transfer the insurance policy without the permission of the insurer. In case the possession of goods is transferred to a third-party, the insurer has all rights to terminate the insurance contract.
  3. Personal right – The person whose name is mentioned in the fire insurance contract as the policyholder is eligible to receive the insured amount in case of any loss or damage.
  4. Direct loss – As it is a fire insurance, the fire should be the direct and immediate cause of the loss or damage.
  5. Description of property – It is an important part of the insurance contract, which says that the location of the property should be mentioned in the policy document. Moreover, at the time of claim, the insurer will settle the claim only when the accident happened at the insured place. In the case of any change in the location, it is necessary to inform the insurance company.

Read More: How to file a claim under Fire Insurance?

Case: 1

Mr. Jayant Sinha bought a fire insurance policy to insure his goods worth Rs 50 lakhs. Last month, a fire erupted at his place and engulfed goods worth Rs 20 lakhs. The insured reported a loss on account of fire to the insurance company. However, upon inspection, it was found that the address where the fire had occurred was different than the address mentioned in the insurance policy document. The insurer turned down the claim because of the change in the location which was not communicated by the policyholder to the insurance company.

Case: 2

Mr. Ram Prakash is a cloth merchant who owns five mills in Surat and Pune. Last year, he bought a fire insurance policy for all its mills. A few weeks ago, Ram Prakash shut down its business in one of its mills, Prakash Mill, situated in Pune. It means, Ram Prakash has also lost insurable interest in Prakash Mill and he should inform his fire insurance company who will either cancel his fire insurance policy or change the address mentioned in the policy document, in case he buys another mill and wants to ensure it. In this case, the person who has bought the mill from Ram Prakash should buy the fire insurance policy.

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