The insurance companies issue various types of fire policies to suit the need of individual persons. The following are the most common types of fire policies:
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1. Specific policy :
It is a policy in which the value insured against is specified. Under this policy a definite amount is insured on a specified property and in the event of loss, it will be paid if the loss falls within the specified amount. For example, if a person has taken a policy of Rs. 10,000 against a property worth Rs. 15,000 and he suffers a loss of Rs. 9,000, he can realize the whole loss from the insurer. But if the loss amounts to Rs. 13,000, only Rs. 10,000 can be recovered.
2. Valued policy :
It is a policy under which the insure undertakes to pay the insured the amount of the value of the property declared in the policy. Under this policy, the value of the subject-matter is previously agreed between the insured and the insurer and this value forms the basis of indemnity. The actual market value is not taken into account. Thus, the amount payable under a valued policy may be more or less than the actual value of the property.
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Valued policies are not generally issued in fire insurance. They are usually issued on pictures, works of art, sculptures and such other things whose value cannot be easily determined.
3. Average policy :
A fire policy containing ‘Average clause’ is called an average policy. Under this policy, if the actual value is greater than the insured amount, the insurance company will pay proportionately and the insured is deemed to be his own insurer, for the balance. The claim is arrived at by dividing the amount of insurance by the actual value of the subject-matter and multiplying it by the amount of loss.
For instance, if a person insures his goods worth Rs. 40,000 for Rs.30,000 only, and the loss caused by fire is Rs 20,000, then the amount of claim to be paid by the insurer will be 30,000/40,000*20,000 = Rs. 15,000. The insured will have to bear his own loss for Rs. 5,000. Thus, under an average policy, the insured is penalized for under-insurance of the property.
The object of this policy is to prevent under-insurance and to induce the insured to take out a fire policy for the correct value.
4. Floating policies :
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This policy is taken out to over goods belonging to the same person but lying in different lots at different places under one sum for one premium. For example, a manufacturer or a trader may take one floating policy for all his goods lying in part in warehouses, railway stations, port etc. The premium charged under such a policy is generally the average of the permia that would have been paid if each lot of the goods had been insured under specific policies for specific amount. This policy is useful when the insured is in a position to declare only the total value at risk and not separate values in separate risks. Floating policies cannot be issued to cover goods in unspecified buildings or places, nor can they be extended to more than one town or village. Floating polices are always subject to an average clause.
5. Reinstatement or replacement policies :
Under this policy the insurer undertakes to pay the full price of the property required to be replaced. Here it is possible to recover not the depreciated value of buildings or machinery, but the cost of replacement of the damaged property by new property but of the same kind. This policy is issued in respect of buildings, or plant and machinery.
This type of policy was introduced after the First World War when there was very heavy inflation the world over.
6. Declaration policy :
Goods which are subject to frequent fluctuations in value or in volume, present a special problem for insurance. In such a case if a businessman takes out a policy for the maximum amount, he has unnecessarily to pay a high premium and if he takes out a policy for a lower amount, he has unnecessarily to pay a high premium and if he takes out a policy for a lower amount the large part of his stock may remain uncovered. So, to remove this difficulty, the ‘declaration policy’ in introduced, which intends to provide maximum cover and at the same time to avoid over-insurance with consequent over-payment of premium.
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This policy is issued with a provisional premium which is calculated on 75% of the sum insured. The insured must declare in writing the stocks covered under the policy during each month within 14 days of each calendar month (or any other date specified in the policy). At the end of the year the average amount of stock at risk is calculated on the basis of the total declarations and this average amount forms the amount insured. A minimum amount, however, is charged by the insurer under this policy.
7. Comprehensive policy :
A fire policy usually does not cover loss occurring as a result of riots, civil strife, rebellion, etc. But fire insurance companies do sometimes issue policies of a comprehensive nature to house-owners. Such policies usually cover the risks such as fire, explosion, thunderbolt, lightning, riots, strike etc. Such a policy is known as comprehensive policy or “All Insurance policy.” Such policies are not common in our country.
8. Consequential loss policy :
It is a policy in which the underwriter agrees to indemnify the insured for the loss of profits which he suffers due to the dislocation of his business, caused by fire. It is also called ‘loss of profits policy.’