Property Insurance

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A fire insurance policy covers for losses that are caused by fire. It is a contract made between the insurer and the provider of the insurance service. A policy is available at a premium, and it covers for the loss caused to the victim due to a fire.

The different types of fire policies available in India are:

  1. Specific Policy: This policy has a specific sum insured and the lower of sum insured, and total loss is payable. If the loss exceeds the sum insured under the policy, it pays only the sum insured.
  2. Specific Policy with Average Clause: At times the insured may buy a nominal sum assured where the actual value of loss can be substantial. In such cases, the insurer applies the average clause to limit its liability, and the compensation amount is proportionately reduced.
  3. Comprehensive Policy: This refers to the complete 360o protection for the property if the insured property is a house, shop, office, or factory it will also cover the loss due to burglary and break-ins. For homeowners, the comprehensive policy includes the building and the contents of the building as well.
  4. Valued Policy: Useful for insuring precious items, artwork, and antiques, the asset’s value is agreed between the insurer and insured at the time of insurance. In most cases, the market value is not available for such items.
  5. Floating Policy: Very useful for businesses with multiple branches at various locations, it covers all the branches under one single policy. This policy also has the average clause applicable to any claims.
  6. Reinstatement Value Policy: This policy compensates the market value of the lost property after accounting for any depreciation (not applicable for under construction property or machinery). The sum assured is based on the market value of the similar asset.

Click here to know: How to file claim under fire insurance in India

Case on Types of Fire Policy

Changs Toiz Pvt. Ltd. has two manufacturing units. One of which is located on the outskirts of Delhi and another in Pune. The owner Kamraj Luthra is considering a fire policy for both the places.

His advisor, Ramakant, asks him to get a floating policy in place to cover both the plants and stores (associated with the manufacturing units) with a single policy.

Ramakant further tells Kamraj that the policies will cover:

  • The machinery on reinstatement value
  • The raw material and under process stock at cost prices
  • The warehouse and office under comprehensive cover
  • The valuables in the office and shops can be covered as per agreed value undervalued policy

Ramakant explains to a worried Kamraj that all these clauses will be inserted in one single comprehensive policy issued by the insurer and he need not worry about managing multiple policies for just two plants.

Kamraj also agrees for a comprehensive cover for his house at Delhi. The policy will cover the building and contents of the house including furniture and electronics at reinstatement value. Other valuables and antiques can be insured at agreed value as mentioned earlier.

Using the Specific Policy

Chang’s Toiz is making steady progress and the increasing demand in north-eastern part of the country demands that Kamraj should invest in a store near Guwahati or Kolkata. Kolkata being more expensive, Kamraj has decided the location of this new supply hub to be Guwahati.

The facility will be insured with a specific policy of Rs. 10,00,000, which includes the cost of material stored and the repair cost of the storage. The insurer has attached an average clause to the policy to avoid adverse or small claims.

Insurer explains that, the average clause will not harm Kamraj’s business if he stores material within the Rs. 10 Lakh limit, however the claim will be prorated if store contains more goods than insured at the time of loss.

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