What are the objectives of fire insurance?

There are many reasons why businesses need fire insurance policies. An understanding of fire insurance objectives, essential elements, and characteristics can help property owners make informed decisions and safeguard their investments.

Financial Protection

One of the primary objectives of fire insurance is to protect the insured financially if their property suffers from fire-related damages. The insurance provides coverage for damage or physical loss or destruction of your insured property.

The coverage also extends to the business’s physical assets, such as equipment, furnishings, inventory, and other belongings, apart from the business property.

A fire can cause significant financial losses that a business may not be able to bear without insurance. Thus, fire insurance gives property owners a safety net to fall back on in the event of fire outbreaks. It minimises disruptions and financial obligations.

Business Continuity

After a fire destroys or damages a business’s property, it is difficult to continue operations. This pause can lead to potential customer dissatisfaction and revenue loss.

Fire insurance enables business owners to resume operations quickly by repairing or replacing assets with insurance compensation. As entrepreneurs resume operations, their business revenue and hard-earned reputation are not harmed much.

Third-party Liability Protection

Some fire insurance plans offer liability coverage. This feature protects you against damages caused to neighbouring structures. It also covers injuries to individuals.

Thus, the insurance coverage includes the costs of settlements, judgements, or legal fees. Third-party liability coverage is essential to protect you from the financial burdens of lawsuits.

Reinforcing Risk Management

One of the aims and objectives of fire insurance is to reduce the risk associated with fire-related incidents. Insurers spread the financial burden across various policyholders, effectively distributing the risk and preventing an individual or business from enduring the entire brunt of the financial burdens of a fire.

Due to this risk-sharing mechanism, businesses enjoy financial stability. Moreover, they develop a sense of collective responsibility within the community. Many insurers incentivise policyholders to put in place fire prevention measures. This lowers the chance of a fire and decreases risk.

Compliance with Landlords and Lenders

Mortgage lenders and landlords often mandate insurance coverage as a condition for property owners to secure a loan or lease property.

These conditions ensure that the property owner can mitigate fire-related losses with the financial protection of insurance. Besides, it protects the interest of lenders and landlords who have a stake in the insured property.

Peace of Mind

Fire insurance provides financial protection and peace of mind. Knowing that there is a safety net to rely on relieves the property owner’s stress and anxiety. It allows them to focus on other vital aspects of their business and lives.

Moreover, when property owners have peace of mind, they can invest in properties without worrying about catastrophic losses, leading to economic growth and development.

Encouraging Responsible Property Ownership

When property owners invest in fire insurance, they feel responsible and incentivised to maintain their buildings and put fire safety measures in place.

Moreover, fire insurance fosters responsible property ownership, promoting a culture of safety and lowering the risk of fire accidents and subsequent damage.

Improving Credibility

When a business has invested in fire insurance, it is a sign of responsible behaviour. Customers, partners, and stakeholders can rest assured that the company is ready to tackle unforeseen situations and knows what to do to mitigate potential losses.

Protection of Investments

The purchase of assets and inventory requires huge business investment. Fire insurance protects these investments, guaranteeing that the financial resources spent in the acquisition and maintenance of these assets are safeguarded.

Legal Compliance

Some businesses, like those operating in high-risk areas or storing hazardous materials, must mandatorily have fire insurance. Non-compliance with this regulation can result in fines and legal battles.

In India, a fire insurance contract covers a variety of perils besides the basic cover against fire. These inclusions are listed below.

• Fire

• Forest Fire/Bush Fire/Jungle Fire

• Explosion/Implosion

• Impact Damage

• Landslides/Rockslides

• Lightning

• Riots, Strikes and Malicious Damages

• Earthquakes and Volcanic Eruptions

• Missile Testing Operations

• Leakage from Automatic Sprinkler Installations

• Theft

• Bursting or Overflowing of Pipes, Apparatus, and Water Tanks

• Floods, Cyclones, Hurricanes, Tempests, Typhoons, Storms, Tornados, Inundations, and Tsunamis

The essential elements of fire insurance are:

Coverage

This section of the policy mentions the protection the insurance plan provides. Generally, the coverage in fire insurance includes damage to the insured property due to fires and associated perils, such as explosions, smoke, and lightning. The coverage may also include the property and the property’s contents and personal belongings.

Premium

The policyholder pays an amount to the insurance company for the coverage. This amount is known as the premium. Generally, it is paid at regular intervals, like monthly, quarterly, or annually.

Several factors, such as the property’s location, value, level of desired coverage, and fire protection measures deployed, determine the premium amount.

Deductible

During claim settlement, the insured must bear a portion of the claim amount while the insurer covers the pending eligible expenses up to the policy limit. The amount borne by the insured is known as deductible.

For instance, if the deductible in your insurance policy is ₹2,500 and your losses total ₹35,000, the insurer will have to cover the loss amounting to ₹32,500 only.

Limits

In a fire insurance contract, limits refer to the maximum amount an insurer will reimburse for a covered loss. The limits will vary for different types of property or perils. The policyholder must be clear on these limits to ensure they have sufficient coverage.

Conditions

This section highlights the specific obligations and requirements the policyholder and the insurance company need to follow as per the policy’s terms.

Examples of conditions include timely payment of premiums, cooperating with the claim settlement process, and intimating the insurer immediately after the fire accident. Failing to comply with these conditions can impact a claim’s validity.

Exclusions

Exclusions refer to risks, circumstances, or situations the insurance policy does not cover. The most common exclusions in fire insurance are losses arising due to nuclear events, acts of war, fires set intentionally, and property damage due to wear and tear. You must read the policy terms carefully for clarification on what is not included.

If you are considering to purchase fire insurance for your business, here’s what you should consider:

• The types of business

• Location of the property

• Estimated value of your property and assets

• Policy deductibles

• Policy coverage limits

Fire is unpredictable and destructive. Even a small one can destroy a lifetime’s worth of savings. Thus, you must protect your property and business against fire-related outbreaks.

A fire insurance policy ensures optimum financial protection for your home and office assets, including furniture and other expensive belongings. You can use it to claim compensation for the value of property and assets damaged by the fire.

Tata AIG offers business insurance to secure your business from losses of various types. We provide marine cargo insurance, group health insurance, fire and burglary insurance, and public liability insurance to help you mitigate losses and damages caused by unexpected situations and risks. Understand the objectives and characteristics of fire insurance to use it to your utmost benefit.

What is Standard Fire and Special Perils (SFSP) insurance?

SFSP is a type of fire insurance policy. It is a traditional coverage to protect your property and its contents against losses or damages arising from fire and other hazards.

What is excluded from a fire insurance contract?

Fire insurance does not protect against fires set deliberately. Moreover, it does not offer coverage for damages or losses suffered due to any other reason apart from fire.