As the fire becomes an increasingly prevalent threat, insurance companies are trying to cut the corners on fire insurance claims for saving money. The increasing threat of fires makes it very essential to familiarize yourself with the claims procedure and how to file fire insurance claims. An insurance claim, if filed correctly, permits you to get reimbursed when you lose your property in a fire.
Losing your belongings and home to a fire is a devastating experience. The last thing you want is your homeowner’s insurance company delivering you a hard time regarding your claim. Listed below are some tips that you can follow when dealing with your homeowners’ insurance company regarding fire insurance claims.
Make use of Available Financial or Resources Advance
In case of a fire occurrence, you may have been forced to vacate the space and search for temporary shelter. If you do not have sufficient money in hand to buy the essentials, you can approach the insurer to extend some financial help in advance. However, the amount released as an advance payment will be fixed with the total claim later, only if the insurer has such a facility.
Estimate The Loss
It is important to calculate the loss to get reimbursed fully. Try keeping a track of the losses incurred after the loss. While doing so just make sure that
• Not to repair the damage infrastructures
• Not to dispose of the burnt items
• Keep the proof of lost or damaged items
Approach To The Insurance Provider and File A Claim
It is suggested to inform the insurance provider as soon as a fire incident occurs. You can either write them or call on their toll-free number informing them about the loss and ask them to access the loss. You may require to submit evidence of loss claim indicating the damaged or lost items. The claim request should contain the listed below items
• Type of damage or loss
• Date of loss
• Description of damaged contents
• Any related injuries
• Location of damage
• Conditions of the office or home
• Police FIR copy in case police is involved
• Other involved
Estimation of Loss of The Surveyor
A surveyor will be appointed by the insurance company to calculate the damage or loss in the spot of the damage. The claim calculation will be done according to the report made by the surveyor. Help in the investigation to get reimbursed completely. Also, keep the original reports of the related documents or investigation for the future.
It’s Not Over Until You Say No
The insurance company might be in a rush to close your case, especially if there is a mass disaster. The reason is longer your claim is open, the greater the chance for you to find something that was ignored earlier. In such a stressful time, the probability is there that may forget something essential to list down in your initial claim. That’s why it is suggested to take your time before closing your claim.
You get many benefits when you buy fire insurance. Fire insurance protects you from many unexpected risks or situations. Just choose the right insurance company and grab the policy on time.
Being a business owner, you have to take care of a lot of things like overseeing operations, finding innovative ways to grow your business, reviewing financial data, and a lot more. When you are busy planning about all these important aspects, you may not be able to identify every possible risk which threatens the future of your company.
Among all, fire accidents are quite common in the workplace. It may cause huge damage to your business property. Cooking was the most common reason followed by carelessness and electrical malfunctions for such a fire outbreak. It’s important for all small business owners to take precautions and minimize the fire risk involved.
Find out fire risks at the workplace
A business owner’s policy includes general liability insurance coverage with certain property coverage. He should identify specific fire risks. After evaluating the possible outbreak, you must opt for the right fire insurance among all the policies available.
Importance of fire insurance and how it works
When you have fire insurance on a BOP, coverage will be provided regarding:
Lost business income
Physical loss or damage to the personal property of the business
Betterments, office fixtures, and improvisations
Those who buy fire insurance against their business property will stay protected from the losses incurred during the damage. If the damage occurs, you file a standard fire insurance claim. And the insurance company verifies standard claims prior to issuing compensation.
However, if you don’t know how to follow steps in the process properly, approach the agent as soon as possible.
Types of fire insurance
Usually, it’s hard to find different types of coverage specially designed for fire outbreaks at the commercial place but some provision is of great help. To cite an instance, if you know that overloaded outlets may result in fire accidents that may cause damage to the company’s computers or network servers. To deal with all this, you can avail benefits of fire policies providing electronic data loss coverage. This is an upgrade option for BOP which provides the coverage for interruption of computer operations, lost data, and e-commerce operations.
As we all know that fire from any source can destroy computer hardware so the upgrade is highly beneficial for business owners.
Advantages of fire insurance
When you have a BOP, it assures peace of mind, provides protection against physical property, and safeguard the future of your company. In case an electrical fire has caused damage to your computers and stock and you are finding it tough to continue business operations, BOP can provide coverage for temporary business interruption.
Remember, your physical property is covered and the business can easily recover in financial terms with the help of the best suitable fire insurance policy. When you fail to insure the possible business risks, there will be limited scope to reopen and start it all over again.
All in all, it’s important for every business to ensure coverage against fire outbreaks due to any reason mentioned in the policy. Choose the right fire insurance policy after important considerations.
Fire insurance policies often come with a reinstatement value clause, which determines the methodology of claim settlement. Under the reinstatement value clause, the damaged property is replaced by a new property of the same type.
This clause is also called the ‘New for old’ clause as the insurance company is liable to pay for reinstating the damaged asset with a new asset.
Though the reinstatement value clause pays for a new asset or property, the principle of indemnity is followed.
The asset or property replaced would be of the same specifications as the one which is damaged.
In the case of plant and machinery, if the new asset is technologically better than the older one, the insured would have to bear a portion of the cost of reinstating the damaged asset with the new asset because the old asset did not possess the same advanced technology as the new asset.
Thus, the insured is liable to cover the cost of the new technology which comes in the new machine or equipment.
The important provisions of the reinstatement value clause include the following –
A) Reinstatement of the damaged asset must be done by the insured within 12 months from the date of damage or destruction of the asset.
The insured can also apply for an extension in the time for reinstating the asset and if the insurance company allows an additional time, reinstatement should be completed within the extended time. If the timeline is not followed, the claim would be settled on an indemnity basis only.
B) The pro-rata average method would be applied by comparing the sum insured of the fire insurance policy with the reinstatement cost of the entire property on the reinstatement date
C) Reinstatement value clause would not apply if the insured does not inform the insurance company of his/her intention to replace the damaged asset within 6 months of loss. If an extended time is availed, information should be given within the extended period to avail reinstatement value basis of claim settlement.
Moreover, if the insured is not willing to replace the damaged property, the reinstatement value clause would not apply. In that case, the claim would be settled on an indemnity basis
D) Reinstatement of the damaged property or asset can be done at any alternate location as desired by the insured. However, this would be allowed only if the liability under the fire insurance policy does not increase due to a change in location
E) Reinstatement value clauses in fire insurance policies are applied on building, plant and machinery, equipment, etc. which are in a new condition. The clause is not applicable on stocks even when the stock is covered under a fire insurance policy.
F) The sum insured of the policy would depend on the reinstatement value of the asset or property which is damaged
G) Till the time that reinstatement is not done, the liability under the fire insurance policy would be determined on an indemnity basis which is the market value basis.
The concept of the reinstatement value clause should be properly understood when buying a fire insurance policy so that you know how a claim would be paid.
Fires and other related perils, i.e. events that cause a financial loss, have become a common cause of losses in recent times. These perils cause unspeakable loss to property as well as goods.
That is why having a fire insurance policy becomes important. The policy covers the financial loss that you face when assets are damaged due to fire or other covered perils.
You can buy a fire insurance plan under the following circumstances
• If you are an owner of goods and/or property
• If you are a mortgagee/financer
• If you are the assignee official receiver of assets where insolvency proceedings are involved
• If you are a warehouse owner and goods are stored in your warehouse for which you are responsible
• If you are an individual who has lawful possession of any goods or property
Coverage under fire insurance policies
Fire insurance plans not only cover losses suffered by fire but also losses suffered by other perils. The common perils which are covered under fire insurance policies include the following –
• Fire, explosion or implosion
• Damage due to an aircraft
• Strikes, riots, or any other type of malicious acts which cause damage
• Storm, typhoon, flood and inundation which is collectively called STFI
• Impact damage which occurs on impact with road or rail vehicles, animals, etc.
• Subsidence, rockslides or landslides
• Overflowing or bursting of water tanks, pipes, and other apparatus
• Missile testing operations and the damages caused thereof
• Water leakage from automatic sprinkler installations which causes damage
• Bush fire
What is not covered under fire insurance policies?
Despite covering a number of perils besides fire, fire insurance policies also have some common exclusions. These exclusions include the following –
• Losses by fire which was caused due to earthquakes
• Perils like war, invasion
• Perils like martial law, insurrection, or rebellion
• Underground fires and the losses that they cause
• The loss suffered when the insured property is burned on the directives of a public authority
• Theft related losses suffered during or after the fire
• Spontaneous combustion
• Losses faced because of nuclear perils
• Losses suffered because of pollution and/or contamination
• Any type of consequential losses
Types of fire insurance policies available in India
Different types of fire insurance plans are offered in India depending on the coverage need of different individuals.
The policies can be for fixed assets like building, plant, and property or for goods and stocks of the business. The commonly available types of fire insurance plans include the following –
For fixed assets
1. Replacement value policy
As the name suggests, this policy works on the concept of replacing the asset which is damaged due to a covered peril.
The insurance company pays the replacement value of the asset which is damaged. The replacement value is calculated as the market value of the asset minus depreciation based on the asset’s age.
If the property is insured, the cost of construction of the property is covered under the policy. In the case of other assets, their replacement value is calculated and paid as a claim.
2. Reinstatement value policy
A reinstatement value policy is nothing but an added clause under the replacement value policy. As per this clause, the insurance company undertakes to replace the damaged property to its original condition which was prior to the loss.
The reinstatement clause is applicable only for fixed assets like buildings. Other assets cannot be covered under this clause.
Moreover, you get coverage on a reinstatement basis only if you choose the reinstatement clause in the fire insurance policy. If the clause is not selected, claims would be paid on a replacement value basis only.
For goods, stocks, and other non-fixed assets
1. Floater policy
This policy is ideal for assets that are located at different locations. A single policy can be taken for all the assets and the assets would be covered on a floater basis. However, to avail coverage, every location and the value of the assets at each location would have to be specified.
2. Declaration policy
A declaration policy is suitable for assets whose value changes during the year, like stocks in a business. Under this policy, a provisional sum insured is taken and the premium is paid for the same. The sum insured would represent the maximum risk of the insurance company. Once a month completes, the highest value achieved by the fluctuating asset is recorded and declared. Thereafter, the average of the declared value is calculated and it becomes the actual sum insured of the policy. If the actual sum insured is lower than the provisional sum insured, you can claim a premium refund.
3. Floater declaration policy
This policy is the combination of floater policy and declaration policy. Assets stored at different locations whose values fluctuate over the year can be covered under a single policy through this cover.
4. Specific policy
This policy covers the loss up to a specific amount. The specific amount is the sum insured of the policy which is usually lower than the actual value of the asset.
5. Comprehensive policy
As the name suggests, a comprehensive policy has the widest scope of cover and covers the asset against the maximum number of perils.
6. Valued policy
Assets whose market value cannot be assessed can be insured under a valued policy. Under the policy, coverage is allowed for an agreed value of the asset which is the best estimate of the asset’s market value.
7. Valuable policy
Under this plan, the sum insured is not decided at the time of buying the policy. The claim amount is calculated at the time of loss. To calculate the claim amount, the market value of the asset is taken into consideration.
8. Average policy
The average policy is a fire insurance policy that works on the principle of the ‘Average Clause’.
An average clause is applicable if you avail a sum insured which is lower than the actual value of the good. In that case, when a claim is made, you don’t get the full amount of the claim. You get an average claim which is calculated in proportion to the sum insured that you have taken.
For instance, suppose the value of an asset is INR 1 lakh and you avail a sum insured of INR 80,000. Since you have insured only 80% of the asset’s value, you would get an 80% claim settlement. So, if the claim is for INR 50,000, the insurance company would apply the average clause and pay a claim of only INR 40,000.
9. Consequential loss policy
This policy covers the loss of profit which you can suffer when fire disrupts your business.
Which type of fire insurance policy should you buy?
Given the different types of fire insurance plans which are available in the market, you must feel confused as to which policy you should buy. To clear this confusion, there are some factors which you should consider when choosing the right type of fire insurance plan. The factors which should determine your choice of the policy include the following –
1. The type of risk that is being covered
Choose a policy based on the type of risk that you face. If you have to insure assets at multiple locations, choose a floater policy. If the value of your assets cannot be accurately ascertained, a valued policy would make more sense. So, choose a policy based on the type of risk that you face
2. The nature of the asset which you want to insure
As stated earlier, different types of assets can be insured under different types of plans. For property and fixed assets, you can choose replacement value or reinstatement value policies while for other assets there are other policies. So, choose a policy suiting the asset which is to be insured.
3. Exposure risks
Assess the types of risks to which the asset is exposed and then choose the best policy.
4. Coverage duration
It is important to know the period for which you need to take the coverage before you select the most suitable fire insurance policy.
Documents required for claim registration in fire insurance
In case of a claim, you should submit the following documents for registering your claim with the insurance company –
1. Copy of the policy bond which should also include the schedule of benefits as well as any clauses which have been attached therein
2. The fire insurance claim form which should be completely filled and signed
3. Newspaper cutting where the instance of the fire has been reported (If available)
4. Previous claim records, if any
5. Photographs of the damages suffered
6. Police FIR
7. Report of the fire brigade
8. The forensic report, if available
9. Final investigation report
Once the claim is registered, the insurance company would get the claim surveyed and then the claim would be settled.
Fire insurance is a very important coverage for protection against the loss of assets. Losses cannot be avoided but you can insure against such losses if you are smart and buy the right type of fire insurance policy.
Frequently Asked Questions
1. Can I change the type of fire insurance policy after I have bought it?
Yes, you can change the fire insurance policy after the coverage period of the original policy is over.
2. Can I increase the scope of coverage under fire insurance plans?
Yes, fire insurance plans allow various coverage extensions which you can choose to increase the scope of coverage. Some common extensions include the following –
• Forest fire
• Damages suffered by the stock when they are stored in cold storage
• Cover for earthquake-related damages
• Damages resulting from leakage and contamination
• Cost of debris removal which exceeds 1% of the claim amount
• Architects, surveyors, or engineers fees which exceed 3% of the claim amount
• Omission to avail coverage for alterations, additions, and extension
• Rent paid for an alternate accommodation
3. How is the premium calculated?
Premiums of fire insurance plans depend on the type of policy bought, the risks covered, the sum insured, the value of the asset, usage of the asset which has been insured, expected risks, and the policy extensions took.
4. If the sum insured is higher than the value of the property would the claim be higher?
No, the claim would be paid on replacement value or reinstatement value clause even if you choose a higher sum insured level.