The declaration policy is designed to give better protection in cases where the stock fluctuates from time to time. Under the declaration of fire insurance policy, the insured takes out insurance for the maximum amount. And, which he considers would be at risk during the period of the policy. On a fixed date of every month or a specific period, the insured furnishes a declaration of the amount.
Key Takeaways
-
The “Pay-As-You-Go” Model: The primary advantage is that your final cost is tied to your actual risk. If your stock levels drop significantly during the off-season, you get a refund on the excess premium at the end of the policy year.
-
Provisional vs. Actual: You start by paying 75% of the total annual premium. At the end of the year, the insurer calculates the average of your 12 monthly declarations. If that average is low, you get a refund; if high, you pay the balance.
-
Strict Reporting Deadlines: Declarations must be made on the specified date or within the 14-day grace period. If you miss this window, the insurer will assume you had the “Maximum Sum Insured” at risk for that month, potentially increasing your final premium.
-
Fraud Prevention: Because this policy relies on the “honor system,” insurers usually only offer it to established and reputable businesses. Under-declaring stock values to save premium is considered a breach of the Principle of Good Faith and can lead to claim rejection.
-
Ideal for Seasonality: This is the perfect solution for businesses like firecracker manufacturers, garment exporters, or grain merchants whose stock values fluctuate wildly depending on the month or season.
The paid premium is provisional to 75% of the annual premium amount. The determination of the exact annual premium is on the average of these declarations; If the premium is higher than the provisional premium already paid. Then, the insured has to pay the difference to the insurer. On the other hand, if the premium so calculated turns out lesser than the premium already paid, they would return the excess to the policyholder.
The declaration must be made on a specified day or within the next 14 days. Otherwise, would consider the sum insured as the declared value.
The great advantage of the Declaration fire insurance policy is the limitation of premium to the actual amount at risk irrespective of the sum insured. The value of risk is the average of each day of the month or the highest value of risk during the month. So, the adjustment of the Premium is at the expiry of the policy.
A declaration fire insurance policy is not available for
- short period,
- stock in process, and
- stock at the railway siding.
Summary: Declaration Fire Insurance Policy
The policy would issue only to reputed concerns as declaration offers scope for fraud because the insured may pay a lesser premium by undervaluing the stock.
Frequently Asked Questions (FAQs)
Q1: What happens if I have a fire and my actual stock is higher than my last declaration?
A) As long as your stock is within the Maximum Sum Insured mentioned in the policy, your claim will be paid. However, the insurer will verify your books. If they find you have been systematically under-declaring values to save premium, they may apply the Average Clause and reduce your claim payout.
Q2: Is there a minimum premium that the insurer will keep?
A) Yes. In most 2026 policies, the insurer will retain at least 50% to 75% of the provisional premium, even if your actual average stock turns out to be very low. This covers their administrative and basic risk-carrying costs.
Q3: Can I include “Stock in Process” (raw materials being manufactured) in this policy?
A) No. A Declaration Policy is generally restricted to Finished Goods or Raw Materials in storage. Stock that is currently on the assembly line or “in process” is excluded because its value changes too rapidly for a monthly declaration to be accurate.
Q4: Why is this policy not available for “Short Period” (less than 1 year) insurance?
A) The mechanism of averaging monthly declarations and adjusting premiums at the end of the year requires a full 12-month cycle to be effective and administratively viable for the insurance company.
Q5: What is the “14-day rule” for declarations?
A) You are required to submit your stock value every month. If you fail to submit it within 14 days of the due date, the insurer will record your “Full Sum Insured” for that month. This prevents you from only declaring values when they are low and “forgetting” when they are high.
About The Author
Shivani
MBA Insurance and Risk
She has a passion for property insurance and a wealth of experience in the field, Shivani has been a valuable contributor to SecureNow for the past six years. As a seasoned writer, they specialize in crafting insightful articles and engaging blogs that educate and inform readers about the intricacies of property insurance. She brings a unique blend of expertise and practical knowledge to their writing, drawing from her extensive background in the insurance industry. Having worked in various capacities within the sector, she deeply understands the challenges and opportunities facing property owners and insurers alike.
