Q.8 Describe the major types of fire insurance policy?
Ans: TYPES OF FIRE INSURANCE POLICY
Following are the types of fire insurance policy:
1. Valued policy
Under this policy, the liability of the insurer is fixed at the time the policy is taken. In such policies, whatever may be the amount of actual loss, the insurer undertakes to pay the amount of the policy. The principle of indemnity does not apply to such policies. Thus the amount of policy payable on loss may be more or less than the actual amount of loss. Such policies are usually issued on films art works, sculptures, antiques etc.
2. UNVALUED POLICY
Under this policy the value of the property is not predetermined. In case of loss the value is computed by assessment.
3. FLOATING POLICY
A floating policy is taken to cover the goods belonging to the same person but lying in different lost at different places less than one sum for one premium. The type of policy usually contains an average clause. This policy is useful when the insured is in a position to declare only the total value of risk and not separate values separate risks-such policies can’t be issued to cover goods in unspecified premises of places, not can they be extended to more than one town or city.
4. SPECIFIC POLICY
Such a policy is taken for a specified amount, which is always less than the real value of the property. Insurance Company is held liable for the actual loss up to the amount specified in the policy. These policies are not subject to average clause.
If a policy of Rs. 10,000/= is taken on a property worth Rs. 15,000/= the following amount will be payable by the insurer.
(i) If loss is of Rs. 6,000/= only Rs, 6,000/=.
(ii) If loss is Rs, 10,000 the payment of Rs, 10,000 will be made by insurer.
(iii) If loss is of Rs. 12,000 or more, only Rs. 10,000 (the amount of the policy) will be paid.
5. AVERAGE POLICY
A policy containing an average clause is called an average policy’, under such policy the insured is penalized for under insurance of the property.
6. SCHEDULE POLICY
Some people’s property is situated in various locations. So the policy, which insures the many properties in different areas under collective terms and conditions, is called schedule policy. Rate of premium and details are given in the same policy.
7. STANDARD FIRE POLICY
Such policy covers all the loss caused by lighting, burning, earthquakes and floods.
8. REPLACEMENT POUCY
Under this type of policy, the insurer reserves with himself the right to reinstate the property instead of paying compensation to the insured for the property destroyed by fire. The insurer has to exercise the option once for all. If he selects one course of action, he cannot afterwards change to the other. This type of policy is generally issued in respect of building, or plant and machinery.
9. TRANSIT POLICY
Transit policy is issued to transfer the goods carefully on its destination. If the subject matter is destroyed due to fire then company compensates the loss.
10. PROFIT INSURANCE POLICY
Sometimes due to fire business closes for few days or for few months, business man losses the profit due to close of business. Os this policy covers the profit that sustains due to fire. Insurance company pays the profit on the basis of previous years average.
11. RENT INSURANCE POLICY
Sometimes due to fire one shop or store damages. Now the owner of shop had already given.
12. RETROSPECTIVE POLICY
A fire insurance policy may have retrospective effect i.e. it may become operative from a past data, at the desire of the parties.
13. DECLARATION POLICY
This type of policy is issued for stocks etc. whose values are subject to frequent changes. In such a case-the policy is issued with a provisional premium, which is calculated on 75% of the sum “insured. The insured declares in each month, the value of stocks covered by the policy. At the end of the year the monthly average is calculated which forms the amount the insurer under this policy charges insured on which the premium is calculated and any difference with the original amount of premium is recovered or paid as the case may be a minimum amount.
14. COMPREHENSIVE POLICY
Such a policy also covers the; risks of loss due o riots, civil strife civil commotion etc, in addition to the risks of lightening, explosion, thunders burst, strikes etc. In such a policy the premium rate is usually very high such policies are not issued in this country. Some of the important clauses of a fire policy are discussed below:
(1) AVERAGE CLAUSE
This clause provides that if insured has got his property insured for less than the actual of the property, he will have to suffer proportionally; in the case of loss to the extent the property was under-insured.
(2) REINSTATEMENT CLAUSES
This clause gives an option to the insurer to reinstate the property damaged or lost by fire instead of paying money to the insured. The object of this clause is to avoid frivolous or fraudulent claims to be presented.
(3) CONTRIBUTION CLAUSE
This clause is inserted when the subject matter is insured with more than one insurer, so that the insured would be liable to pay only to the extent he is required to contribute in case of less.
(4) ARBITRATION CLAUSE
It provides for arbitration for settlement of disputes. The clause also prescribes the procedure to be followed. The object of the clause is to settle amicably the disputes etc. between the parties.