"The improved fire protection grading will bring about fire insurance rate reductions for many policyholders (effective August 11), but perhaps more importantly, the new grading means that the protection of residents has been significantly enhanced. I commend the community for their successful efforts to improve safety."
― Jim Donelon, Commissioner of Insurance, Baskin (July 28, 2014)
The term 'insurance' is a written guarantee, which safeguards an insured individual and his/her assets in troubled times. For this guarantee, the individual needs to pay a substantial amount to the relevant insurance company, periodically, which is called a 'premium'. This same money (and more) is used to help the insured individual in times of trouble.

Thus, when we talk about health insurance, it means that when we fall ill/undergo a surgery, the arising expenses will be borne by the insurance company. When we talk about car insurance, the cost to repair the car in case of damage will be borne by the company, and so on. All this certainly involves a lot of paperwork and legal jargon. In this Buzzle article, we will learn about the importance of fire insurance coverage, its types, limitations, etc.

The Theory Explained
  • Fire insurance is a type of insurance in which an individual pays some amount of money to the insurance company periodically, and in exchange, the company helps him/her out if and when that individual suffers loss or damage of property due to a fire.
  • It should not be confused with property insurance, as it covers repair, reconstruction, even replacement costs much beyond what is covered in the latter.
  • There is a maximum limit up to which the costs may be covered, this depends on the conditions written in the contract and the amount of loss that has occurred.

Coverage Conditions and Limitations

As mentioned earlier, this policy helps recover whatever is lost in case of a fire accident. However, in most cases, the contract will have a specified amount that is agreed to, mutually, at the time of signing the contract. This amount is what the affected person can claim at the time of loss. And it may not be equal to the loss that occurs. Also, there are exceptions to what a fire insurance can cover. Losses incurred due to a fire that is caused by natural causes―lightning strikes, or earthquakes―are not covered by fire insurance. According to the insurance companies, a 'fire' means the production of light and heat by combustion or burning. Thus, the loss that occurs should be the result of accidental ignition. The loss also includes the damage caused by efforts to extinguish the fire.

Therefore, a claim for loss by fire must satisfy the following conditions:
  • The reason for the loss or damage should be an actual fire, i.e., it should not be caused by just high temperature or so.
  • It should be accidental, not intentional. If it is deliberately caused, the insurer is not responsible.
  • The damage must relate to the subject matter of policy.
  • The goods damaged must be on the premises where the incident occurs.

Types of Losses

Losses covered by the policy include:
  • Wages paid to fire-extinguishing staff.
  • Furniture/other items that are destroyed in the process of saving them.
  • Items damaged due to water that is used to extinguish the fire.
Losses that are not covered by the policy include:
  • Damage caused by spontaneous combustion (if a bomb explodes due to its own defect).
  • Damage caused due to wars, riots, earthquakes, rebellions, mutiny, enemy hostilities, etc.
  • Damage caused due to burning of property by public authorization.
  • Damage due to a theft occurring before or after the incident.

Types of Policies

Actual Value Policy
It pays you the full value for your current house minus any depreciation. There are certain limits regarding the maximum payout available in the event of a fire. This is decided by the insured individual and the insurer at the time of signing the contract.

Replacement Value Policy
It covers the cost of replacing the existing home. However, this can get a little complicated, because if the value of the property has depreciated since its purchase, the payout also decreases. However, if the value has gone up, the payout increases.

Floating Policy
It covers the damages to property that belongs to the same person, but which may be located at different places. This is done under a single sum and for a single premium. For instance, this policy might cover goods lying in two warehouses at two different locations.

Specific Policy
It covers the damage up to a pre-decided, specific amount. The selected amount is less than the real value of the property. The actual value is not taken into consideration while determining the amount of indemnity. In such policies, the 'average clause' does not exist, which makes the insured individual liable to take some damage upon himself.

Some other types are valued policy, comprehensive policy, etc., which more or less contain the same clauses and conditions of the above mentioned policies.

Importance - Why is it Needed?

The importance of this policy can be ascertained after listing down its benefits, as follows:
  • It covers the damages occurred to the building.
  • It covers for damaged home décor (if any), like carpets, clothes, wardrobes, plywood furniture, etc.
  • It pays for the expenses incurred due to damaged electronic items, like television, cooler, computers, etc.
  • In case of a business, i.e., if an office building or factory is destroyed, it covers the price of the shares broken.
  • It covers the medical expenses for the employees if they get injured.
  • In case of loss of life, it provides the loss of life advantages to the employee's family.
  • It pays for repair and replacement of the machines and other electrical/electronic items, and assets that are destroyed due to the incident.
A fire accident can incur heavy property and financial loss. Having a fire insurance coverage saves you from financial disaster and bring you back from the cold. Of course if the incident is natural or intentional, the policy may or may not cover the damage; however, at a turbulent time when you've probably lost your house, money, assets, this policy will help you. You can already fathom this by reading the advantages mentioned above. That is why a fire insurance is so very important. It is a safety net that will protect you when you are threatened by a fire accident.

A fire accident may or may not occur, but do not risk the chance. You have worked all your life for your house and other belongings, do not ignore the importance of this policy, for it will safeguard you in trouble.