Thursday 12 July 2007

What are the risks covered under fire insurance?

Fire insurance business is governed by the Fire Tariff that lays down the terms of coverage, the premium rates and the conditions of the Fire Policy. The fire insurance policy has been renamed as Standard Fire and Special Perils Policy. The risks covered are as follows:
Fire:
Destruction or damage to the property insured by its own fermentation, natural heating or spontaneous combustion or its undergoing any heating or drying process cannot be treated as damage due to fire. For e.g., paints or chemicals in a factory undergoing heat treatment and consequently damaged by fire is not covered. Further, burning of property insured by order of any Public Authority is excluded from the scope of cover.

Lightning:
Lightning may result in fire damage or other types of damage, such as a roof broken by a falling chimney struck by lightning or cracks in a building due to a lightning strike. Both fire and other types of damages caused by lightning are covered by the policy.

Explosion/ Implosion:
Explosion is defined as a sudden, violent burst with a loud report. An explosion is caused inside a vessel when the pressure within the vessel exceeds the atmospheric pressure acting externally on its surface. An explosion may cause fire damage or concussion damage.

Implosion means bursting inward or collapse. This takes place when the external pressure exceeds the internal pressure. This policy, however, does not cover destruction or damage caused to the boilers (other than domestic boilers), economisers or other vessels in which steam is generated and machinery or apparatus subject to centrifugal force by its own explosion/ implosion. These risks can be covered in a Boiler & Pressure Plant Insurance Policy, which is specially designed to handle these risks.

Aircraft Damage:
The loss or damage to the property (by fire or otherwise) directly caused by aircraft and other aerial devices and/ or articles dropped there from is covered. However, destruction or damage resulting from pressure waves caused by aircraft travelling at supersonic speed is excluded from the scope of the policy.

Riot, Strike, Malicious and Terrorism Damage:

The act of any person taking part along with others in any disturbance of public peace (other than war, invasion, mutiny, civil commotion etc.) is construed to be a riot, strike or a terrorist activity.

Any loss or physical damage to the property insured directly caused by such activity or by the action of any lawful authorities in suppressing such disturbance or minimising its consequences is covered. Further the wilful act of any striker or locked out worker, in connection with a strike or a lock out, or the action of any lawful authority in suppressing such act, resulting in visible physical damage by external means, is also covered. Malicious act would mean an act with malicious intent but excluding omission of any kind by any person, resulting in visible physical damage to the insured property, whether or not the act is committed in the course of disturbance of public peace or not. Burglary, housebreaking, theft or larceny does not constitute a malicious act for the purpose of this cover.

Total or partial cessation of work or the retarding or interruption or cessation of any process or operations; or, permanent dispossession resulting from confiscation, commandeering, requisition or destruction by order of the Government or any lawfully constituted authority; or permanent or temporary dispossession of any building or plant or unit or machinery resulting from the unlawful occupation by any person of the same or prevention of access to the same, are not covered.

Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood and Inundation:

Storm, Cyclone, Typhoon, Tempest, Tornado and Hurricane are all various types of violent natural disturbances that are accompanied by thunder or strong winds or heavy rainfall. Flood or Inundation occurs when the water rises to an abnormal level. Flood or inundation should not only be understood in the common sense of the terms, i.e., flood in river or lakes, but also accumulation of water due to choked drains would be deemed to be flood.

Impact Damage:

Impact by any Rail/ Road vehicle or animal by direct contact with the insured property is covered. However, such vehicles or animals should not belong to or owned by the insured or any occupier of the premises or their employees while acting in the course of their employment.

Subsidence and Landslide including Rockslide:

Destruction or damage caused by Subsidence of part of the site on which the property stands or Landslide/ Rockslide is covered. While Subsidence means sinking of land or building to a lower level, Landslide means sliding down of land usually on a hill.

However, normal cracking, settlement or bedding down of new structures; settlement or movement of made up ground; coastal or river erosion; defective design or workmanship or use of defective materials; and demolition, construction, structural alterations or repair of any property or ground-works or excavations, are not covered.

Bursting and/ or overflowing of Water Tanks, Apparatus and Pipes:

Loss or damage to property by water or otherwise on account of bursting or accidental overflowing of water tanks, apparatus and pipes is covered.

Missile Testing operations:

Destruction or damage due to impact or otherwise from trajectory/ projectiles in connection with missile testing operations by the Insured or anyone else, is covered.

Leakage from Automatic Sprinkler Installations:

Damage caused by water accidentally discharged or leaked out from automatic sprinkler installations in the insured's premises is covered. However, such destruction or damage caused by repairs or alterations to the buildings or premises; repairs removal or extension of the sprinkler installation; and defects in construction known to the insured, are not covered.

Bush Fire:

This covers damage caused by burning, whether accidental or otherwise, of bush and jungles and the clearing of lands by fire, but excluding destruction or damage caused by Forest Fire.

How to file for claims under fire insurance

In the event of a fire loss covered under the fire insurance policy, the Insured shall immediately give notice there of to the insurance company. Within 15 days of the occurrence of such loss the Insured should submit a claim in writing giving the details of damages and their estimated values. Details of other insurances on the same property should also be declared.

The Insured should procure and produce, at his own expense, any document like plans, account books, investigation reports etc. on demand by the insurance company.

Pro-rata Average Condition

If at the time of a loss, it is observed that the insured property is of higher value than the Sum Insured, the Insured has to bear the rateable proportion of the loss. Every item, if more than one, covered by the policy is separately subject to this condition.

For instance, a firm insures its building for Rs.10 lakhs and plant and machinery for Rs.20 lakhs. A fire occurs causing loss to plant and machinery and the damage is assessed at Rs.10 lakhs. The market value of the building at the time of occurrence of fire is assessed at Rs.5 lakhs and that of plant and machinery at Rs.25 lakhs.

The building is therefore over-insured, but the plant and machinery is under-insured if considered separately, as per the policy condition. Collectively, however, the market values of the assets are same as the value insured for. This does not give any advantage to the Insured.

Since plant and machinery is affected by the loss and its Sum Insured is under-insured by 20 percent in relation to the market value, the insurance company pays Rs.8 lakhs (i.e.80%) of the actual loss. The Insured has to bear a loss of Rs.2 lakhs for the under-insurance.

On the contrary if there was a loss to the building of say, Rs.2.5 lakhs, the insurance company would pay the full amount. Nothing extra is payable for over-insurance.

Contribution Clause

If at the time of loss or damage happening to any property hereby insured there be any other subsisting insurance or insurances, whether effected by the Insured or by any other person or persons covering the same property, the insurance company shall not be liable to pay or contribute more than its rateable proportion of such loss or damage.

For instance, a firm insures its finished goods stored in a warehouse for Rs.50 lakhs with X Insurance Company. Since the stocks are hypothecated to a Bank, they also insure the same property for Rs.30 lakhs with Y Insurance Company, thinking that the Insured has not insured them. There is a fire in the warehouse and the loss is assessed at Rs.10 lakhs.

In such a situation, X Insurance Co. pays 5/8th of Rs.10 lakhs that is Rs.6.25 lakhs and Y Insurance Co. pays 3/8th that amount to Rs.3.75 lakhs.

Classification of Insurance

Life is full of uncertainty. Trials and tribulations abound in each and every aspect of life. No one can truly predict or even estimate what the future has in store for him. Life offers no guarantees by itself, except the incidences of death and taxation.

This lack of security present throughout life can be overcome partially through insurance. Insurance can never replace or repair a loss. But the monetary value offered by insurance helps in adjusting to the new circumstances.

Despite offering innumerable options and immense scope, insurance can be classified into four main categories.

Insurance of Person

Insurance of Property

Insurance of Interest

Insurance of Liability


Insurance of Person:

Under the purview of this class of insurance, the risks associated with human life in general can be covered up to the limit specified. A person can insure his or her life and his health against any unplanned contingencies.

In event of his death, his dependants will be reimbursed to the full amount that he was insured for. Or if the insured person meets with an accident or suffers from an illness that cripples him forever, he will be compensated with the complete sum assured anyway since he may not be able to lead a normal life again.

In case, the accident is not that severe, he should be able to recover after medical treatment and rehabilitation. If he has opted for medical cover, then his medical expenses, treatment and medication will be paid for by his insurance policy.


Insurance of Property:

Everyone possesses material value in the form of tangible assets. Assets can be in the form of a landed estate or a vehicle, share holdings or plain old paper money.

Since tangible property has a physical shape and consistency, it is subject to many risks ranging from fire, allied perils to theft and robbery. An individual's lifetime of hard work can be wiped out in a blink of an eye.

But if a person judiciously invests in insurance for his property prior to any unexpected contingency then he will be suitably compensated for his loss as soon as the extent of damage is ascertained.


Insurance of Interest:

Every individual has to discharge certain specific duties. Everyone is expected to maintain a standard of conduct. But then, it is an intrinsic part of human nature to err. No one is infallible and no one will ever be.

Owing to an occasional error or omission committed by us, our clients or customers might suffer a loss. In turn we might have to pay them damages or compensation out of our own personal resources.

However, if our chosen profession qualifies for insurance of interest, then our insurance policy will more than suffice in arranging for the funds and court formalities that might ensue in the aftermath of legal libel.


Insurance of Liability:

Every person has to regulate his actions and behaviour so as not to cause injury or damage to other people and their property. Everyone is personally responsible and liable for his actions.

If due to lack of control over his actions or prejudiced behaviour, a person incurs any liability then he has to provide compensation out of his personal resources. Liabilities: legal, civil or criminal can have severe repercussions on social standing and prestige besides the financial status.

By investing in liability insurance, an individual can ward off any liabilities he might incur due to his actions and behaviour. Besides, the premiums payable on liability insurance are fairly minimal when compared to the damages that have to be compensated in the long run.

Need for house insurance

Home is where the heart is sums up in short how attached one would be to his humble abode, be it a pigeonhole or a palatial residence. Whether it is a rented one or your own personal property insurance is a must to take care of the unpredictable risks to your house such as fire, natural calamities, burglary, short-circuits etc.

Such incidents would not only cause severe mental agony but the losses you may suffer under such circumstances can be unimaginably high. And setting up your house all over again can be quite expensive. But if your house is adequately insured such botherations need not be a cause for worry.

Insurance bought for your house will not only cover the structure of the house but will also cover the belongings. All those expensive items or consumer durables you bought over a period of time may have been damaged in the fire. But your insurance company will take care of the losses and indemnify you for it.

Similarly if your house is burgled and your valuables have disappeared your insurance company will bear your loss. Or for instance, your domestic help, is electrocuted in your house and dies. The insurance company can pay off the losses and liabilities that may otherwise be a concern for you, under the Workmen’s Compensation Act.

In other words buying an insurance policy for your house will buy you peace of mind as such risks are unpredictable but not impossible.

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