In order to get full protection for your property, insurance on reinstatement (replacement) basis is recommended
All of us know that fire insurance covers building and contents. Fire insurance is important because a disaster can occur at any time. Fire insurance policy offers protection against the risk of loss or damage due to fire or special perils. Fire insurance covers residential buildings, corporate offices, hospitals, factories, etc—who have financial interest in the property. All immovable and movable property—like buildings, offices, shops, plant & machinery, furniture, fixtures, fittings and other contents—can be insured.
A fire insurance policy involves an insurance company agreeing to pay a certain amount equivalent to the estimated loss caused by fire to the insured, within the time specified in the contract. One should confirm with the insurer about the types of risks covered, since one cannot insure the property against all types of risks of fire. Property insurance provides protection against most risks to property, such as fire, theft and some weather damage.
Fire insurance business in India is governed by the All India Fire Tariff that lays down the terms of coverage, the premium rates and the conditions of the fire policy. The fire insurance policy has been renamed as ‘Standard Fire and Special Perils Policy’.
When a structure is covered by fire insurance, the policy will pay out in the event that the structure is damaged by fire. Some standard property insurance policies include fire insurance in their coverage, while in other cases, fire insurance may need to be purchased separately. Property owners should check with their insurance companies if they are not sure whether or not fire insurance is part of their policies, and if fire insurance is not included, it should be purchased.
Actual value vs reinstatement basis
Property can be insured on actual value (market value) or replacement cost basis. Depending on the terms of the policy, fire insurance may pay out the actual value of the property after the fire, or it may pay out the replacement value or reinstatement basis.
Actual cash value coverage provides for replacement cost minus depreciation. This value takes into account both depreciation due to age and appreciation due to inflation.
In a replacement value policy, the structure will be replaced in the event of a fire, whether it has depreciated or appreciated. In other words, if homeowners purchase a home and the value increases, as long as it is covered by a replacement value policy, the insurance company will replace it.
In case of reinstatement value policy, the basis of loss settlement is the value of new property without taking any depreciation into account. In order to get full protection, insurance on reinstatement (replacement) basis is recommended.
Premium rate depends on construction of building and occupancy. If the declared sum insured is found to be less than the value of the property insured, then the claim amount is proportionately reduced. For example: If the value of the property is Rs. 50 lakh, but the sum insured is Rs.40 lakh and a fire loss of Rs.10 lakh has taken place, the claim amount payable will be proportionately reduced: 10 x 40 / 50 = Rs. 8 lakh.
Change of ownership in the insured property should be intimated so that the new owner may be covered by means of suitable endorsement.
Scope of cover
Fire insurance policy broadly covers losses due to:
- Fire, lightning, explosion & implosion
- Aircraft damage, riot, strike, malicious damage & terrorism
- Storm, flood & inundation
- Bursting of water tanks, apparatus and pipes
- Missile testing, leakage from automatic sprinkler installations & bush fire
Depending on the terms of the policy, the contents of the home as well as the structure may be covered in the event of a fire. When purchasing fire insurance, people should be aware that some types of fires may not be covered. For example, a fire caused by an earthquake might be excluded from a fire insurance policy, as might a fire caused by an act of God.
Fire insurance provides protection for the estimated value of the physical house. However, there are a number of exclusions to the same such as medical bills, loss of human life and pets, loss of personal belongings, structures outside the property (including garages), damage to the landscape and expenses for accommodation for the time being. These things can be covered under a package of extended property insurance.
It is important to read the terms of the policy carefully, and to ask for clarification from the insurance representative if the terms are not clear.
Documents required by insurer for processing the claim
- Immediately intimate the loss / damage, so that a surveyor may be deputed to for loss assessment
- Take steps to minimise loss, as if no insurance has been taken
- Give an account of all properties damaged with estimated amounts having regard to their values as on the time, date and place of loss
- Submit duly filled Claim Form
- First Information Report
- Fire Brigade Report
- Photographs of damaged property
You also have an option to buy fire insurance policy online as it would be cost-effective since insurers pass on the savings from distribution, administration and courier expenses to the customer. You can compare various policies, evaluate riders to be included in the policy and choose one that best suits your needs. Buying insurance online is an activity that requires only a few clicks. In most cases, the insurance policy document is generated instantaneously.
One can choose from a wide range of options to pay online. These include credit/debit card payment, net banking, funds transfer. While most insurers have put in strong security systems in place, it is important to reconfirm the same before transacting online. One should ensure that the address line of the browser page reads ‘https’ instead of the regular ‘http’, since the same indicates secured connection.