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. Features of Fire insurance is discussed in points given below:
Features of Fire Insurance
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.
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.