Features Of Fire.docx

FEATURES OF FIRE INSURANCES

1) Offer & Acceptance : It is a prerequisite to any contract. Similarly, the property will

2)

3)

4)

5)

6) 7)

be insured under fire insurance policy after the offer is accepted by the insurance company. Example: A proposal submitted to the insurance company along with premium on 1/1/2011 but the insurance company accepted the proposal on 15/1/2011. The risk is covered from 15/1/2011 and any loss prior to this date will not be covered under fire insurance. Payment of Premium: An owner must ensure that the premium is paid well in advance so that the risk can be covered. If the payment is made through cheque and it is dishonored then the coverage of risk will not exist. It is as per section 64VB of Insurance Act 1938. (Details under insurance legislation Module). Contract of Indemnity: Fire insurance is a contract of indemnity and the insurance company is liable only to the extent of actual loss suffered. If there is no loss, there is no liability even if there is fire. Example: If the property is insured for Rs 20 lakhs under fire insurance and it is damaged by fire to the extent of Rs. 10 lakhs, then the insurance company will not pay more than Rs. 10 lakhs. Contribution: If a person insured his property with two insurance companies, then in case of fire loss both the insurance companies will pay the loss to the owner proportionately. Example: A property worth Rs. 50 lakhs was insured with two Insurance companies A and B. In case of loss, both insurance companies will contribute equally. Period of fire Insurance: The period of insurance is to be defined in the policy. Generally the period of fire insurance will not exceed by one year. The period can be less than one year but not more than one year except for the residential houses which can be insured for the period exceeding one year also. Deliberate Act: If a property is damaged or loss occurs due to fire because of deliberate act of the owner, then that damage or loss will not be covered under the policy. Claims: To get the compensation under fire insurance the owner must inform the insurance company immediately so that the insurance company can take necessary steps to determine the loss.

definition Fire insurance contract is defined as “an agreement, whereby one party in return for a consideration undertakes to indemnify the other party against financial loss which the latter may sustain by reason of certainly defined subject-matter being damaged or destroyed by fire or other defined perils up to an agreed amount”. Fire, in order to make the insurer liable under the contract, must satisfy two conditions First, there should be actual fire or ignition, and second, the fire must be fortuities in its nature. It is a well-known fact that the fire causes huge losses every year. The individual owner by taking fire Insurance can prevent the fire waste to some extent. The insurer acts as a middleman between all the members of the society who are exposed to the fire risk on the one hand and the members who will be the actual victims of the fire losses on the other. The insurer charges the premium from all the insured members and makes good the losses when they occur to any of them. The system of fire insurance cannot save the society from the economic loss to the community to the extent of the property lost by fire, but it compensates someone and this saves him from a ruinous loss, at the cost of a group of some others. The party responsible to indemnify the loss is called the insurer, the party who is to be indemnified is called the insured, the consideration for the contract is termed ‘the premium’, the defined subject-matter is termed ‘the property insured” the sum set forth in the contract is called the assured sum, and the document containing the terms and conditions of the contract is known as ‘the policy.’ The contract of insurance involves all the elements of an ordinary contract and insurance contracts. The elements of a contract are discussed in following paragraphs. Before discussing the elements of the fire insurance contract, the special meaning of the ‘Fire’ must be understood. Related: 7 Steps of Risk Management Process

Definition of Ignition in Insurance The express in the policy we have to construct is loss or damage occasioned by fire. This means that loss or damage must be either by ignition of the article or property or premises or part thereof. In other words, the damage should be occasioned by fire. Loss or damage caused by excessive fire heat cannot be included in ‘loss or damage by fire’. If should be proved here, that the loss should be caused by fire. The cause of the fire is not important. The fire even if caused by the negligence of the servant or himself may come under the definition of fire. There should be no fraud or willful misconduct by the assured. There should be actual ignition but a process resembling fire may not be fire. For example; The damage done due to smoke due to faulting chimney or overheated iron is not the example of fire. Similarly chemical actions, explosion, lighting, etc. are not occasioned or example of fire.

INTRO Fire Insurance A fire insurance is a contract between the policyholder and the insurer. Here the insurance company will pay to the policyholder any loss caused to him or his particular property when destroyed by a fire accident. So the protection is against any damage that the fire causes. Here the policyholder pays an annual premium. And if a fire breaks out and causes damage to the property the insurance company will pay to the extent of the damages up to the insured amount. If the damages exceed such amount the company will not be liable for the excess amount. And if during the term such an incident does not occur, the premium amount will obviously lapse. Two important characteristics of fire insurance are: 

Insurable Interest: The policyholder must have an insurable interest in the property being insured. The loss of such property must affect the policyholder and their survival will benefit him.



Good Faith: The policyholder must disclose all facts to the insurer in good faith. All details about the property, its construction, the environment etc must be provided to the insurance company. If the company finds out at a later date that the policyholder withheld information they can terminate the policy.