Fire Insurance Policies In India-A Financial Compensation For Fire Victims

Fire insurance is a contract in which the insurer agrees, in exchange for a payment (premium), to compensate the insured for any financial loss caused by fire to property or goods during a specific period.

The parties to the contract agree on a maximum amount (written in the contract) the insured can claim in a loss. The insurance company has to pay back the actual amount of the loss set by the policy.

A fire insurance policy cannot be given to someone else without the insurer’s permission because the insured must have an insurable interest in the property at the time of contracting and at the time of loss.


Fire insurance is ‘the insurance contracts against loss by or related to fire or other events usually covered by fire insurance policies’.

Fire insurance covers the loss and damages incurred due to the fire. The insurance specifies the maximum amount the insured can claim in the loss caused due to fire. However, this amount is not the measure of the loss.

Features of fire insurance

  1. Fire insurance is a contract for indemnity and a good faith agreement.
  2. Most fire insurance policies are only good for a single year.
  3. The insurance contract is in a document called a ‘fire policy’.
  4. A fire policy is only good if the person who bought it has an insurable interest in the property it covers.
  5. If more than one policy covers the same property, each insurer has the right to share the money paid by others.
  6. A fire insurance policy could not pay anything if the policyholder caused the fire. In this case, the policyholder could be charged with a crime.
  7. Most fire insurance policies have a clause that states that the insurer is not responsible if the fire was caused by a riot, civil disturbance, a war, or an explosion.

Benefits of fire insurance

  • Insuring the home, share, furniture, business buildings, and other things can cover the cost of replacing homes and other things damaged or destroyed by a fire.
  • Insurance helps a homeowner. Insurance details how much damage to the building will cost. Insurance details prices for replacements or repairs of TVs, computers, and air coolers that broke because of the fire.
  • Businesses can benefit from fire insurance in the following ways:
    • It pays for the price of the destroyed shares in the fire.
    • It gives the employees death benefits if they die in a fire.
    • It tells you how much it will cost to fix or replace the machines if they break because of a fire.
    • It pays for the employee’s medical bills if they get hurt in a fire.
  • It is necessary to keep your property or home safe from fire, especially if you know the chance of a fire is high.
  • A fire insurance policy protects against damage caused by a fire in two ways.
    • After the fire is out, one pays out the amount of money equal to the actual amount of the home or business.
    • The other way is to add up the costs of replacing the property or home, which in this case denotes fixing it up and restocking it. It is bad enough when the house falls apart, but it is even worse if the house is not insured to help you get back to your normal life.

Fire insurance types

Valued policy

The property is insured before the start of the policy. If the insured suffers a loss, the insurer will pay a fixed amount of compensation, regardless of how much money the insured lost. The claim amount could be less than or more than the property’s market value, and it does not include any improvements made to the property.

Valuable policy

It is an exception to the aforementioned rule. In this case, the value of the insured property is determined at the time of damage, and the claim is paid based on the property’s market value at the time of damage.

Specific policy

In this policy, a specific amount is not the same as the property’s market value and is for a specific amount of time for a particular property. The money paid out will not be more than that covered by the policy.

Average policy

Average policy is the policy in which the insured does not take an insurance policy that covers the entire property, and the loss is split between the insured person and the insurance company.

Floating policy

In this type of policy, a single policy covers two or more properties of the insured at different places. The insured pays a single premium, which is more convenient than buying multiple policies.

Adjustable policy

Because the value of stocks can change, figuring out how much insurance coverage to buy can be challenging. In this case, an ‘adjustable policy’ in which the insurance amount and premium are first based on the stock’s current value and subsequent change based on the stock’s value, which is regularly reported by the insured. The premium goes up or down in a pro rata way.

Declaration policy

Unlike in the previous policy, the insured buys an insurance policy for the stock’s maximum value and regularly tells the insurance company how the stock’s value has changed. The insured pays 75% of the premium upfront, and the rest depends on how much the premium is calculated to be after one year based on the average value the insured declared in that year.

Excess policy

This policy is for people whose stock prices keep on fluctuating. In this case, the insured buys two policies:

  1. First loss policy to cover the minimum value of the stock
  2. Excess policy to cover the value of the stock above the minimum.

The stock’s minimum value is based on its past worth, and the insured tells the insurer every month how much more it is worth than the minimum value. In this case, the premium is not very high.

Reinstatement policy

If a fire damages the insured property, the insurance company replaces or fixes it instead of giving money.

Comprehensive policy

This policy covers losses from not just fire but also theft, war, riots, strikes, and so on. The premium for this insurance is very high, but it protects the insured against risks.

Consequential loss

The policy covers the fire loss and the loss caused by the fire. A ‘consequential loss’ is a loss in profit, salary, or inflation that the insured has to deal with because of the fire.

What does fire insurance cover?

The fire insurance covers the following:

  1. Risks caused by fire;
  2. Risks that are not caused by fire but covered by fire insurance contracts

You can look at fire insurance from two perspectives:

  1. Ordinary fire insurance and
  2. Fire insurance covers a wide range of things.

Risk covered by fire insurance

The fire policy has to list risks that could cause losses; if a loss occurs, then the insurance company will only cover these risks. Most fire insurance covers the following risks:

  • Fire: It does not cover loss, destruction, or damage to the property caused by the property’s spontaneous fermentation, stopping, heating, or drying. Furthermore, fire does not cover things burned by the order of a public authority.
  • Damage to aircraft: This covers any loss caused by the aerial devices, including damage to aircraft and items they drop. This does not cover losses caused by pressure waves, though.
  • Lightning: Sometimes, lightning can start a fire or cause other damage to the insured property.
  • Explosion/Implosion: Explosion caused by a difference in temperature between the inside of a building and the outside air.
  • Riots, strikes, and damage done on purpose: This type of insurance pays for property damage caused by strikes by workers, riots by the public, or intentional damage caused by a person.
  • Storm, cyclone, typhoon, tempest, hurricane, tornado, flood, and inundation: Any damage done by these natural events to the insured property is also under the fire insurance policy.
  • The fire insurance policy also protects against water tanks, equipment, and pipes that burst or overflow. Tests of missiles can cause property damage, which is also covered by a Fire Insurance policy.
  • Automatic sprinkler installations leakage: It covers damage to property caused by sprinklers that do not work right, but it does not cover damage that occurs due to sprinkler fixation or during building renovation.

Risk not covered under the fire insurance

Insurance companies do not pay out in case of certain circumstances including:

  • Loss, damage, wear and tear to precious stones and metals, art, maps, stamps, checks, accounts, books, rare documents, among others.
  • Loss, destruction, or damage caused by riots, civil unrest, revolutions, war, aggression, internal emergencies, storms, cyclones mong others.
  • Forest or jungle fires start on their own.
  • Chemicals caused the fire to start on its own.

Who is eligible to buy a fire insurance policy?

  • Any person, organisation, institution, or business may need to protect their business from an unplanned event.
  • Everyone who owns a house, furniture, household items
  • Retailers or godown keepers.
  • Banks, institutions for finance, education, research.
  • Service providers, hotel owners, medical clinics, and clinics.
  • Transporters and companies that make and sell goods.

Fire insurance claim procedure

  1. Information to the insurance company: If a fire causes damage or loss, the policyholder should inform the insurance company in writing an estimated amount of loss.
  2. Survey report: If the loss amount is small (up to Rs. 20,000), the insurance company may send an officer to gauge the damage and decide how to pay, based on the claim form and the officer’s report. In case of big loss, a Government-licensed independent surveyor is asked to report on the loss.

    In general, the survey report would include:

    • Size of the loss.
    • If there is any underinsurance.
    • Information about the salvage and its value.
    • Information about costs.
    • Compliance with the policy’s conditions and warranties
    • Information about other insurance policies on the same property and division of loss between co-insurers
  3. Claim form: The person who owns the policy will fill out the claim form and include the following information:
    • The name and address of the insured.
    • The date of the loss, the time, and the place where the fire began
    • Cause of fire.
    • Specifics about the damaged property, such as a description, etc
    • Information about other insurance policies on the same property, including the name of the insurer, the policy number, and the amount of coverage
    • Fire brigade report details.
    • File an F.I.R. at the nearest police station to find out if anyone else is responsible.
  4. Settlement of claim: Based on the claim form and the survey report, a decision is made about whether or not to settle the loss.


Fire insurance is a policy between the insured and the insurance company in which the insurance company pays for the loss the insured incurred due to fire.

The fire policy is called standard fire and it is a special perils policy as it does not just cover losses or damages caused by fire but covers losses or damages caused by things like lightning, storms, strikes, damaged aircraft, among others.

Even though these risks are covered, they can be prevented. For the Indian economy to grow, every business should insure its assets. If the price of stocks changes considerably over a year, they should be covered by a declaration fire insurance policy. The agreed bank clause could be added to protect the interests of the financial institutions.


How long does fire insurance last?

Policies for fire insurance are for one year.

What are the fire tests for fire insurance?

The damage must be caused by a fire or spark, not just by high temperatures, and the fire should be the close cause of the loss.

What does pure risk mean?

Pure risk is a term for risks that people cannot control.

What are the three types of pure risk?

There are three types of pure risks, namely personal, property, and liability.

What does "fire claim" mean?

This claim covers all accidental fire losses, subject to the fire insurance's terms and restrictions and according to policy value, not the property owner's damage.