Tag: Types of Fire Insurance Policy

Types of Fire Insurance Policy A fire insurance policy is one of the best ways to secure your properties if something unexpected happens and your properties are damaged by fire. You will get recovered if you have a fire insurance contract in your hand. There are different types of fire insurance policies you can choose for your property. These types can assist you in knowing what type of benefits each policy has to offer you. Let's discuss the seven main types of fire insurance policies. Basic Fire Insurance Basic fire insurance is a kind of insurance contract that pays for losses brought on by fire to the insured property. It is an easy-to-understand and crucial type of insurance that helps guard against damages from fire-related events. Typically, the cost of restoring or rebuilding fire-damaged property is covered by this kind of insurance policy. Suppose you are a small business owner who has a basic fire insurance policy. If a fire breaks out in your office and damages any property, such as equipment or furniture, the policy will provide coverage for the cost of repairing or replacing the damaged items. However, the insurance policy will not cover any damages caused by other events such as floods, earthquakes, or theft. Valued Fire Insurance A valued policy is another type of fire insurance policy, the value of the item insured is decided and agreed upon when you purchase the policy. If the item is damaged or destroyed by fire, the insurer will pay the predetermined amount, regardless of the item's market value. This policy is typically used for valuables such as artwork, jewelry, or paintings, where it may be difficult to determine the exact value after they are damaged or lost. For example, if you insured a one-of-a-kind sculpture, the insurer would pay the agreed amount if it was damaged in a fire, even if the sculpture's market value had increased or decreased. Also Read: The 2 Concepts of Insurance: Functional and Contractual Concept Average Fire Insurance An insurance policy that includes the "average clause" is known as an Average Policy. This clause is used to penalize the policyholder for insuring their property for a lower amount than its actual value. If a loss occurs, the compensation paid out is reduced proportionately if the value of the policy is less than the value of the property. For example, a homeowner has a house worth $500,000 but only purchases a fire insurance policy for $250,000. If a fire causes damage to the home amounting to $100,000, the insurer will only cover a portion of the cost of repairs because the policy value is only half of the actual value of the property. In this case, if the policy includes an average clause, the insurer would only pay $50,000 (half of the policy value) instead of the full $100,000 cost of repairs. This encourages the insured to purchase a policy that more accurately reflects the value of the property to avoid being penalized in the event of a claim. Comprehensive Fire Insurance Comprehensive fire insurance is one of the most popular types of fire insurance policy. It provides full protection against various risks, such as fire, burglary, theft, damage from natural calamities, and civil unrest. It is also known as an "All in policy." However, it does not cover every type of risk, and there may be some exclusions and limitations. This type of policy benefits both the insurer and the insured. The insurer can charge a higher premium, and the insured is protected against losses due to several specific risks. For instance, a homeowner can get comprehensive fire insurance to protect their property from damage due to fire, theft, or natural disasters. Floating Fire Insurance A floating fire insurance policy is a type of insurance that provides coverage for goods that are stored in different locations but owned by the same person or business. This type of policy is especially useful for import and export businesses that store goods in various warehouses. Instead of taking out separate policies for each location, a floating policy can cover all the goods under one policy. The premium charged for this policy is usually an average of the premiums that would be paid for individual policies. The policy is subject to the average clause, which reduces compensation proportionately if the sum insured is less than the value of the property insured. Consequential Loss Insurance When a fire occurs at a business, it can cause a halt in production and result in a loss of profits. A consequential loss policy can help by providing coverage for both tangible and intangible losses. This policy can compensate the insured for the loss of net profits, expenses related to continuing operations, and increased costs incurred as a result of the fire. Its purpose is to protect the business owner against financial loss caused by interruptions to their business due to a fire. Replacement Fire Insurance Replacement insurance is the last of our 7 main types of fire insurance policies. When insured property is lost or damaged, the underwriter provides compensation based on its current market value, which takes into account any depreciation. However, if the policy is a replacement policy, compensation is based on the cost of replacing the property with a similar item, without any additional cost to the insured. The compensation amount is determined by the current market price of the replacement item.