Fire insurance is a quintessential cover for most businesses and industries. Any company formed under the provisions of the Companies Act, 1956 as well as any co-operative societies which have physical assets need to insure their business against the risk of fire and earthquake. This is where a fire insurance policy comes into the picture. The policy protects the assets of the business against fire and other perils and provides unmatched financial security.
A standard fire insurance policy covers other perils too besides fire. That is why the policy is called fire and special perils policy. A total of eleven perils are covered under a fire and special perils policy. These perils are as follows –
The first and obvious peril is fire. If the insured asset or property is damaged due to fire, the policy compensates the loss incurred. Fire should be accidental in nature and not deliberate.
The next peril which is commonly covered is lightning. If, due to a lightning strike, the insured property or asset is damaged or destroyed, claim is paid under the fire insurance plan.
Explosion from any cause and the resultant damage is covered. Explosion of commercial boilers are, however, excluded. Commercial boilers are those which generate steam to power the company or the manufacturing unit. Explosion of all other types are covered under the plan.
Riots and Strikes
If the insured property or any insured asset is damaged due to riots or strikes, the damages sustained and the financial loss incurred is covered under the fire insurance policy. While in case of riots there would be public looting or destruction, in case of strikes, property is damaged by employees of the company itself.
Malicious damage occurs when someone, with intent of malice, damages the property or asset. Such malicious damages are also covered in the policy.
Water and Wind related damage
Water and wind related damage is when the insured property or asset is damaged due to water or wind related perils. Such perils include floods, storms, cyclones, inundation, etc.
These are the basic perils which are covered by all fire insurance policies. Besides these, the following perils are also added to the coverage of a fire insurance plan –
If any material is dropped from any airplane or satellites and the material causes damage to the insured property, such damages would be covered.
Bursting or overflowing of a Water Tank
If a water tank bursts and overflows and the water rushes down to destroy the insured property, the damage incurred is covered by the fire policy.
Leakage of Automatic Sprinklers
Sprinklers are meant to protect against fire and prevent fire-related damages. If, however, the sprinklers leak automatically even in the absence of fire and damage the insured property, the damage cause is covered by the fire insurance policy
Bush fires and the damages they cause are also covered under the fire insurance policy.
Landslide and Subsidence
Damage caused by landslide or subsidence are also covered under the fire insurance policy.
Impact damage by Third Party Vehicles or Animals
Damage caused by outsiders (other than residents and employees) vehicles or animals are also covered under the fire insurance policy.
Property damaged by missiles undergoing testing are also covered under the fire insurance policy.
These perils are normally covered by a fire insurance policy. Though the coverage is comprehensive, there is a concept of deductible clause in all fire insurance policies. In every claim, there is a deductible of 5% to 15% of the claim amount. The deductible ranges in the minimal range of Rs.10, 000 to Rs.500, 000 depending on the claim made. At each instance of claim, you have to pay the deductible. If the loss exceeds the deductible, the fire insurance policy pays the claim. In case of act of God perils (natural calamities) the deductible is higher than normal perils.
Besides the above-named perils, a fire insurance policy provides other value-added coverage features too. These include the following –
- Removal of debris – Under this feature, the costs incurred in clearing and removing the debris caused due to any of the covered peril is compensated by the plan. The coverage is allowed up to 1% of the claim amount.
- Architect’s Fees – The fees payable to architects for reconstructing a damaged property is also covered by the plan. The coverage is available up to 3% of the claim amount.
There are a number of add-on covers available under a fire policy. The most common being:
Earthquake: This cover should be taken for properties lying in earthquake prone zones of the country.
Terrorism: Loss or damage of property due to Terrorist Acts are excluded under the fire policy. This can be availed as an add-on.
All assets covered under a fire insurance policy can be categorized under the four following heads –
- Machinery, plants and equipment
- Other assets like furniture and fittings, electronic equipment, stationery, air conditioners etc.
- Stocks which are further divided into raw materials, work in progress and finished goods
So, understand the coverage of a fire insurance policy before you buy one.
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