Fire insurance is property insurance covering damage and losses caused by fire. The purchase of fire insurance in addition to homeowner’s or property insurance helps to cover the cost of replacement, repair, or reconstruction of property, above the limit set by the property insurance policy. Fire insurance policies typically contain general exclusions, such as war, nuclear risks, and similar perils.
Fire, in order to make the insurer liable under the contract, must satisfy two conditions: First, there should be actual fire or ignition, and second, the fire must be fortuitous in its nature.
Function of Fire Insurance
The function of fire insurance is to make good the financial loss suffered as a result of the fire. A fire insurance contract is 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 certainly defined subject-matter being damaged or destroyed by fire or other defined perils up to an agreed amount”.
Some of the insurable properties are buildings, electrical installation, contents of building such as machines plant and equipment accessories, etc. goods such as raw materials, goods in process, finished goods, goods in the open or in the premises, contents in dwellings, shops, hotels furniture, fixture and fitting and other movable and immovable properties.
Fire insurance policies include payment for loss of use, or additional living expenses due to uninhabitable conditions as well as damage to personal property and nearby structures. Homeowners should document the property and its contents to simplify the assessment of items damaged or lost during a fire.
A fire insurance policy includes additional coverage against smoke or water damage due to a fire and is usually effective for one year. On expiration, the policyholder may renew the policy according to the conditions of the policy.
Some standard homeowner’s insurance policies include coverage for fire. If excluded, fire insurance may need to be purchased separately, especially if the property contains valuable items that cannot be covered with standard homeowner’s coverage. The insurance company’s liability is limited by the policy value and not by the extent of damage or loss sustained by the property owner.
Fire Insurance Policy Coverage
Fire insurance covers a policyholder against fire loss or damage from many sources. Sources include fires brought about by electricity, such as faulty wiring and explosion of gas, as well as those caused by lightning and natural disasters. Bursting and overflowing of a water tank or pipes may also be covered by the policy.
Most policies provide coverage regardless of whether the fire originates from inside the home. The limit of coverage depends on the cause of the fire. The policy will reimburse the policyholder on either a replacement-cost basis or an actual cash value (ACV) basis for damages.
If the home is considered a total loss, the insurance company may reimburse the owner for the current market value. Typically the insurance will offer a market value compensation for lost possessions, with the total payout capped based on the home’s overall value. Many policies limit how much reimbursement is for luxury items such as paintings, jewellery, gold, and fur coats.