Fire insurance definition

Fire insurance was started after marine insurance. Marine insurance was useful only to persons engaged
in some kind of trade. The fire havoc can be experienced by persons of all walks of life. The Great Fire of
London in 1956 destroyed 13,000 houses in four days. This ‘Great Fire’ gave birth to Fire Insurance. Fire
insurance is a contract to indemnify the loss suffered by the insured. This contract does not help in
controlling or preventing fire but it is a promise to compensate the loss.

A fire insurance is an agreement between two parties, i.e., insurer and insured, whereby insurer
undertakes to indemnify the loss suffered by the insured in consideration for his (insured) paying of
certain sum called ‘Premium’.

A fire insurance contact may be defined as ‘an agreement’ whereby one party in return for a
consideration undertakes to indemnify the other party against financial loss which the latter may sustain
by reason of certain subject-matter being damaged or destroyed by fire or other defined perils up to an
agreed amount.

The term ‘fire’ must satisfy two conditions: (a) There must be actual fire ;(b) The fire should be
accidental.

Importance of fire insurance

Fire insurance benefits to households

 Provides for the price of damage to the building

 Indemnity against the loss to furniture like plywood, almirah, bed,
sofa, TV etc.
 If fire causes the damage to electronic items like T.V., a/c,
refrigerator, the value of their replacement or repairing is payable
under the policy.

Fire insurance benefit to enterprise

 Covers the broken share price

 If fire causes the loss to the life of an employee, the legal
compensation is also covered under a fire policy.
 Provides maintenance charges for the machine that got broken due
to fire.
 The expenses incurred in treatment of the injured employees due to
fire are indemnified.
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Fire insurance is essential for business because, it helps to protect from the damages
which is occurred by the fire. For industrial development of a country, Fire insurance
plays vital role by giving the certainty of paying financially against losses of an
entrepreneur, businessman or industry-owner for such insurance policy taken by
them. The main importance’s of fire insurance are given below.

Role in Trade and Commerce: For increasing business and trade fire insurance make
vital rules. Business man may be fall in loss because of the fire. To maintain or fulfill
that losses businessman have to do the fire insurance. Because of the fire insurance
businessman can continue his business after any losses are occurred for the reason
of fire by collecting the money of fire insurance.

Role in the Field of Industry: By the fire small or big industry can be fallen. This kind
of industry can be protecting by the fire insurance by taking the damage from the
insurance company. Fire insurance is also important in industrial sector. If any losses
occurred by the reason of fire the insurance company fulfill the losses.

Distribution of Risk and Remedies: Insurance Company takes many insurance

contracts from various businessmen for fire insurance but they have to give the
demurrage only few businesses where the fire damages the organization. The losses
which are occurred by fire are distributed among all the contract of the insurance
company. The risk is distributed among all.

Rehabilitation: Fire insurance rehabilitates the person or businessmen who are

hampered by the fire. They fulfill their damages by get the money from the
insurer. That is why they get the change to carry their business.

Protection of National resources and reconstruction: For protection of national

resources and reconstruction fire insurance take an important rule. The assets which
are damage by the fire can be restored or rebuild by taking the money from the
insurance company.
Investment: By collecting the premium of fire insurance the insurance company can
invest the premium in profitable sector as an investor for their profits. They can
invest in any sector of business of the country. Because of that investment country’s
production and business sector’s speed are
increased.
Official security: Now a day’s office is so much important for any profitable or
nonprofit able organization. In the office the organizations keep their important files,
document and assets. If there any fire happens they will be fall in great hamper. So
they contract the insurance company against the fire damages. They can fulfill their
damages if they fall the losses because of the fire. That is why the office is secured
against the fire and the loss can collect and keep the office running.

Role in personal life: fire insurance is also necessary for the personal life. It provides
demurrage against damages for the building, if any home furnishings are damaged
due to the fire like furniture, carpets, clothes, It provides maintenance price for the
electronic items, which is hampered due to fireplace, like television, computer, air
coolers.

Role in Share Business: When a company fall in the fire then the share value of that
company may be fall down. Fire insurance can protect that fallen by giving the
damage that are occurred by the fire. It covers the price of share broken due to the
fire.

Types of Fire Insurance Polices

Types of Fire Insurance Policies Fire insurance policies are classified into different
types based on the insurance hazards, insured risk, business type, policy rules.
Insurance companies provide different fire insurance policies to cover the losses
caused by fire for businesses.

There are different forms of policies for different types of policies. For meeting
various needs of the businesses and individuals there are various types of fire
policies which are issued.

1. Valued policy: Under this, the insurer agrees to pay a fixed sum of
money irrespective of the amount of loss to the insured. the valued
 policies are betrayal from the principle of indemnity because the
market price is not paid in this case.
2. Unvalued Policy:The valuable policy is that policy where claim amount
is to be determined at the market price of the damaged property.
3. Specific Policy: Under it, any loss suffered by the assured is covered only
up to a specific amount which is less than the real value of property. A
specific policy is an example of under-insurance.
4. Floating policy: It covers the property lying at different places against
loss by fire. An average clause will always be there in a floating policy.
5. Average Policy: A fire policy containing an ‘Average Clause’ is called an
Average Policy. Under a specific policy (i.e., a policy without the
Average clause), in the event of loss, the insured can claim up to the full
amount of his policy, even if he has under-insured his property. Claim =
Insured amount / value of property X actual loss
6. Blanket Policy: Blanket policy is issued to cover more than one named
building or property, or all the contents of more than one named
building. Under such a policy, all the fixed and current assets of a
manufacturer or a trade lying in different buildings can be covered by
one policy at the same premium.
7. Adjustable Policy: Adjustable policy is issued for a particular period on
the existing stock. The premium amount is paid in full at the time the
policy is taken. Any variation in the value of the stock covered by the
policy is intimated to the insurer by the insured. The insured, on receipt
of such an information, endorses the policy in accordance with the
change intimated and the premium adjusted. The premium is finally
settled at the expiry of the policy.
8. Excess Policy:Sometimes, the stock of a businessman may fluctuate
from time to time and he may be unable to take one policy or specific
policy. The insured in this case can purchase two policies, one ‘First Loss
Policy” and second, ‘excess policy.’ The ‘First Loss Policy’ will cover that
stock below which the stock never goes.