FIRE INSURANCE
DEFINITION & UNDERSTANDING FIRE INSURANCE :
Fire insurance:
Fire insurance contract may be defined as an agreement, whereby one
party in return for a consideration undertakes to indemnify (promise to
pay) the other party against loss or damage on account of fire and / or
incidental to fire for the agreed amount (sum assured)
Insurer : Is the party responsible to indemnify the loss
(pays)
Insured : Is the party who is to be indemnified
(protected)
Premium : Is the consideration for the contract
Sum assured : Is the amount set forth in the contract as
compensation towards the loss claimed by the insured
Policy : Is the document containing the terms and
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conditions of the contract
FIRE INSURANCE CONTRACT & COVER NOTE:
Essentials of Fire Insurance Contract:
1. Financial stake:
The policyholder must have a financial stake in the property being
insured, meaning they would suffer a financial loss if the property is
damaged or destroyed.
1. Good Faith:
Both parties (insurer & policyholder) are required to act with
complete honesty and transparency, sharing all details about the
property and the risk covered. This principle ensures that insurance
contracts are based on mutual trust and accurate information.
1. Indemnity:
The insurer agrees to indemnify the policyholder against financial
losses resulting from a fire, up to the policy limit.
1. Policy Limit:
The policy limit is the maximum amount the insurer will pay in the 3
event of a loss.
FIRE INSURANCE CONTRACT & COVER NOTE:
5. Premium Payment (no- default)
The policyholder must pay the premium regularly.
6. Specified Perils (events or causes)
Fire insurance policies typically cover specified perils, such as
fire, lightning, and explosion.
7. Conditions and Warranties
Conditions and warranties that the policyholder must comply.
8. Claim Settlement
The insurer will settle claims in accordance with the policy terms
and conditions.
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FIRE INSURANCE CONTRACT & COVER NOTE:
Cover Note
A cover note also called as “Interim protection Note” is a temporary
document issued by an insurance company to provide interim
insurance coverage until a formal insurance policy is issued.
It serves as a temporary contract between the insurer and the
policyholder.
Purpose of a Cover Note
● Temporary Coverage: Provides immediate insurance coverage
while the formal policy is being processed.
● Interim Protection: Offers protection to the policyholder against
specified risks during the interim period.
Key Features of a Cover Note
● Limited Validity: Cover notes are typically valid for a short period,
such as 30 or 60 days.
● Conditional Coverage: Coverage is subject to the terms and
conditions of the proposed insurance policy
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FIRE INSURANCE CONTRACT & COVER NOTE:
Importance of a Cover Note
● Immediate Protection: Provides immediate protection to the
policyholder, ensuring they are covered in case of an unexpected
event.
● Time-Sensitive Situations: Useful in situations where immediate
coverage is necessary
Limitations of a Cover Note
● Temporary Nature: Cover notes are temporary and will expire
unless a formal policy is issued.
● Conditional Coverage: Coverage is subject to the terms and
conditions of the proposed policy.
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FIRE INSURANCE POLICY (INSURABLE VALUE OF
PROPERTY):
Insurable Value of Property in Fire Insurance
The insurable value of a property is the amount of money for which
the property can be insured against fire-related losses or
damages.
In other words, it's the maximum amount an insurer would pay if the
property is damaged or destroyed by fire.
This value is typically determined based on factors such as:
● Market Value: The current market value of the property.
● Replacement Cost: The cost of replacing or rebuilding the
property.
● Actual Cash Value: The depreciated value of the property.
Importance of Accurate Insurable Value
● Adequate Coverage: Ensures the property is adequately insured
against potential losses.
● Premium Calculation: Helps determine the premium amount to be
paid by the policyholder. 7
● Claim Settlement: Affects the amount of claim payout in case of a
loss.
RISKS COVERED/ NOT COVERED IN FIRE INSURANCE
POLICY:
Shall largely depend upon the Type of the policy and the terms and
conditions therein
Risks covered:
● Lightning
● Explosion/Implosion
● Aircraft Damage
● Riot, Strike, Malicious & Terrorism Damage
● Bush Fire
● Impact Damage
Risks (may) not be covered:
● War and Nuclear Risks
● Intentional Acts
● Wear and Tear
● Floods and Earthquakes
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● Acts of Terrorism
QUESTION BANK: 5A (Part 1)
1. Define Fire Insurance. What are the various terminologies in a Fire
Insurance Policy?
2. Explain Cover note.
3. What are the essential components of a fire insurance contract?
4. What are the factors affecting the insurable value of a property?
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TYPES OF FIRE INSURANCE POLICY:
1. Standard Fire Insurance Policy
Covers damages caused by fire, lightning, explosion, and implosion
Suitable for residential and commercial properties
Essential for businesses and property owners to protect assets
2. Comprehensive Fire Insurance Policy
Offers broader coverage, including fire, allied perils, burglary, theft,
riots, and civil commotion
Provides extensive protection against various risks and uncertainties
3. Valued Policy
Predetermined value of assets or properties, ensuring fixed
compensation
Ideal for unique or high-value assets with fluctuating market values
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TYPES OF FIRE INSURANCE POLICY:
4. Floating Policy
Covers multiple assets or locations under a single policy
Suitable for businesses with diverse or changing asset portfolios
5. Specific Policy
Covers specific properties or assets listed in the policy
Allows customization based on unique risk profiles and insurance needs
6. Replacement Policy
Covers the cost of replacing or repairing damaged assets
Factors in depreciation
7. Reinstatement Value Policy
Focuses on restoring damaged property to its original state
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TYPES OF FIRE INSURANCE POLICY:
8. Declaration Policy
Suitable for fluctuating asset values, like stocks
Premiums based on the highest value achieved
9. Consequential Loss Policy
Covers financial losses due to business interruption after a fire incident
Helps mitigate financial impact of downtime
10. Rent Insurance Policy
Protects landlords against loss of rental income due to fire damage
Ensures steady income stream despite unforeseen disasters
11. Industrial All Risk Insurance Policy
Comprehensive coverage for industrial establishments against various
risks
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FIRE INSURANCE SETTLEMENT:
Step 1: Notification
Notify the insurance company about the fire incident as soon as
possible.
Share basic information about the incident, such as date, time, and
location.
Step 2: Documentation
Fill and Submit Claim Form provided by the insurer.
Attach Supporting Documents like FIR, proof of loss, and policy copy.
Step 3: Survey and Assessment
The insurer appoints a surveyor to assess the damage.
The surveyor evaluates the extent of the damage and determines the
claim amount.
Step 4: Investigation
The insurer may conduct an investigation to verify the claim.
The insurer may gather evidence, such as witness statements and
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photographs.
FIRE INSURANCE SETTLEMENT:
Step 5: Claim Settlement
The insurer determines the claim amount based on the survey report
and policy terms.
The insurer pays the claim amount to the policyholder.
Step 6: Closure
The insurer issues a claim settlement letter.
The policyholder signs a discharge voucher, confirming the claim
settlement
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ROLE OF ARCHITECT:
1. Risk Assessment
Identify Fire Hazards:
Recommend Improvements:
2. Compliance with Building Codes
Ensure Code Compliance:
Documentation:
3. Valuation and Risk Mitigation
Accurate Valuation:
Risk Mitigation Strategies:
4. Documentation for Insurance
Provide Plans and Specifications:
Highlight Safety Features:
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QUESTION BANK:
1. Briefly explain the steps involved in settlement of a Fire insurance
claim
2. Name and explain any five types of fire insurance policies
3. Sapphire CHS has appointed you as an architect for procuring a
fire insurance policy for their property. The property comprises of
one level basement for four wheeler parking and stilt +30 storey
residential tower above. Explain your approach towards preparing
a report for procuring the fire insurance policy
4. What are the factors affecting the insurable value of a property?
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