Contents
Meaning of Fire Insurance
Fire insurance is insurance that provides protection against losses or damages caused by fire. It is an agreement enter into by two persons that are Insurer and Insured. Insurer agrees to indemnify the insured for losses incurred by him due to fire. The insurer charges the premium from insured in return for indemnifying him for losses.
Fire insurance is a tool which can only compensate for losses caused by fire but cannot control or avoid fire. Damage or loss of property by fire is must condition for claiming compensation under fire insurance contract. The term “Fire” in this contract states that fire or ignition should be actual and accidental. If the losses or damages to property are done by smoke or heat but not by ignition, such losses cannot be claim under fire insurance contract.
Insurance companies compensate insured under fire insurance contract either on replacement cost basis or actual cash value basis for damages. They are liable to pay compensation only up to the extent of insured amount. In case if damages exceeds the insured amount, then insurance companies are not liable to pay for excess amount. For taking fire insurance policy, insured need to fill up a proposal form with insurer.
The form consists of different columns where full information regarding property to be insured is provided. Insured need to disclose all information fairly to insurer. There are three important principles in fire insurance: Utmost good faith, Insurable interest and Principle of indemnity. Various characteristics of Fire insurance are discussed below:
Characteristics of Fire Insurance
Personal Insurance Contract
Fire insurance contract is personal contract between insurer and insured. The inclusion of insured is inevitable as he is involved with property. Insurer is required to continuously monitor and keep all information about activities of insured. Without insurer consent, insured cannot bring any changes in insurance policy. Insurer need to be informed in case of transfer of possession of property by insured. If insured transfers property without informing insurer, insurer has full rights to terminate the insurance contract.
Full Description of Property
Under fire insurance contract, the person willing to take policy is required to disclose true and fair information about property. Any misrepresentation of facts will make the insurance contract void. All information like location of property, its contents and various other details should be mentioned clearly in policy documents.
For claiming compensation it is must that any loss or damage to property occurs only at mentioned location. Change in location will not be considered unless and until insurer is informed of such change prior to occurrence of such losses.
Fire only the cause of loss
Fire is only cause for losses and damages to insured property which is considered under fire insurance contract. Insured can claim compensation from insurer for losses caused by fire. The fire must be actual and accidental. Damages or losses due to heat or smoke are not covered under losses by fire. Insurer is not liable to pay any compensation to insured if losses occurred due to some other reason other than fire.
Personal Right
The compensation for losses or damages to property can only be claim by the person who name is mentioned in policy documents. Under fire insurance, the mentioned person is eligible to receive the compensation amount from insurance companies.
Utmost Good Faith
Fire insurance contract is governed by the principle of utmost good faith. It means that no secrets should be kept and all facts should be disclosed fairly about property by insured to insurer. Insured should not misrepresent any details regarding property. Proper information regarding the property will enable the insurer to calculate the right amount of premium to be charged from insured.
Insurer is also required to explain clearly all terms of contract to insured. Insurer has the right to terminate the contract if he found that insured has conceal some information regarding property from him at time of forming contract.
Principle of Indemnity
Fire insurance contract are meant to indemnify the losses or damages caused due to fire. Under this contract, insurer agrees to compensate insured for losses due to fire in return for premium. Insurer will compensate only if losses occurs by fire accidents and that too up to the insured amount. In case if no damages or losses occurs insurer will not be liable to pay any amount to insured.
Insurable Interest
Having insurable interest in property to be insured under fire insurance is must for person seeking fire insurance policy. Person must have some vested interest in it and must be affected by existence and non-existence of such property. He is eligible for taking insurance benefits under fire insurance policy only if he has insurable interest. Such insurance interest should exist both at the time of taking insurance policy and at the time of claiming for losses incurred due to fire.
Features of Fire Insurance
Written Agreement
Fire insurance is a written agreement that take place between insurance company and insured. There is an offer and acceptance of insurance agreement between both the parties. Such agreement is bounded by certain obligations and both parties are required to fulfil these obligation. Insurer agrees to provide guarantee for compensation against fire losses. Insured pays premium to insurer regularly for taking such guarantee for compensation.
Payment Of Premium
Fire insurance requires payment of premium by insured to insurance companies. Premium is considered as lawful consideration in insurance contract like in any other lawful contract. This premium is paid by insured to insurer for protecting itself and getting compensation against fire losses. Insurance premium is termed as contribution on the part of insured in fire insurance contract.
Contract Of Indemnity
Fire insurance indemnifies for losses on occurrence of contingency. Insurer under fire insurance contract compensates when some contingency occurs resulting in losses and damages. Insured cannot make profit from insurance policy but can only claim compensation from insurer in case of contingency. If no contingency occurs, insurer is not required to pay any compensation to insured.
Compensation For Fire Losses
Under fire insurance contract, insurer compensates insured for fire losses. Fire is the only reason which is taken into account for various losses and damages done. The fire according to this contract must be real and accidental. Any loss or damages to property arising out of reasons other than fire is not considered under this contract. Insurance companies are not liable to pay for such amount of losses.
Covers Insured Amount
Insurer under fire insurance contract are liable to compensate up to insured amount of property. The insured amount is the extent of loss to property which insurer agrees to undertake and compensate at time of entering the insurance contract. Insurer is not liable to pay any amount for amount of losses which exceeds the insured amount.
No Mis-Representation Or Concealment
There is no misrepresentation or concealment of facts by both insurer and insured. Misrepresentation of facts from both insurer and insured side will make the insurance contract void. Insured is required to disclose full information regarding property to be insured fairly to insurer. This will helps the insurer in calculating the right amount of premium to be charged. Insurer is also required to explain clearly the terms and conditions of insurance contract to insured to avoid any confusion.
Period Of Insurance
The period of fire insurance policy is equal to or less than one year. Fire insurance cannot exceed one year except if this insurance is issued for residential houses where it can exceed one year. These insurance policies need to be renewed from time to time for carrying it for longer term.
Claims
Insured is required to inform the insurer immediately in case of fire accidents for getting their assured compensation. Timely informing about contingencies to insurers will help them in determining the actual amount of losses which take place due to fire accidents.