Here Are 10 Major Types Of Fire Insurance Policies!

Here Are 10 Major Types Of Fire Insurance Policies!

Fire insurance is a form of property insurance. The policy covers damage and losses that occur due to fire. The homeowners’ or property insurance comes with limitations. To increase the number of possible events you must buy fire insurance too. It helps the policyholders in covering the cost of repair or replacement of property with fire damage. It is important to note that the fire insurance policies do not include war or nuclear risks. There are different types of fire insurance policies and we will discuss them in detail over here.


Types Of Fire Insurance Policies

Insurance companies provide a variety of fire insurance policies to cover the losses that fire cause. There are various policies that support you in different ways. You can buy these policies for individual purposes or even business needs.


#1. Valuable Policy

In this policy, the calculation of the claim amount depends on the market price of the damaged property. The determination of the amount of loss is not at the time of commencement of risk. Rather, it depends on the time and place of loss. It is a true representation of the doctrine of indemnity.


#2. Valued Policy

In this policy, the calculation of the value of the property depends on the inception of the policy. In this case, the insurer has to pay the total value irrespective of the current market value. So the measure of indemnity is not the standard in this type of policy. The true value totally depends on the inception of the policy.

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After the destruction of the property, the policyholder receives a fixed amount of money. The value could be greater or less than the market value of the property that is destroyed. In this policy, the measure of indemnity totally depends on actual rather than market value. The insurance policy is for insuring especially sculptures, pictures, rare things, works of art, and more.


#3. Floating Policy

The floating policy is the policy that covers one or more types of goods at one time. For the same owner with one sum insured you have to pay one premium. This policy is useful for covering the fluctuating stocks in different localities. The properties are spread over different localities and in different forms. There is a difference in physical and moral hazards too. So it makes it difficult to determine the premium rates. Big manufacturers or traders whose stock lies in different places mainly buy such policies. In such a case, it is difficult for the owners to take a single specified policy. If each property has a different policy then whatever the premium would be is taken into account. It helps them find the average rate of premium. That’s how different it is from other types of fire insurance policies.


#4. Specific Policy

Here, there is the insurance of a specific sum for a specific property and for a specific period. You are going to get the whole of the actual loss amount if it doesn’t exceed the policy amount. Here, the value of the insured property doesn’t have any relevance with the measure of indemnity. Also, the insurance policy sets a limit up to which it will pay for the losses.


#5. Declaration Policy

The declaration policy contributes to a certain limit or relatable proportion of the loss. There are chances that the amount of excess stock is more than the sum set. This means the businessmen won’t get full coverage. To deal with this problem, the insurance company has come up with a declaration policy. Moreover, if the first loss policy is subject to an average condition, you will be at loss. The declaration policy gives protection in cases where there is fluctuation in stock. Under this policy, you get to choose the maximum amount that’s at risk during the policy period. On a set date, you have to furnish the declaration of the amount. Also, there is a provision to pay premiums up to 75% of the annual premium amount.


#6. Excess Policy

Sometimes the stock of a businessman may change from time to time. So it is difficult to buy a single policy or a specific policy. If he takes a policy with a higher amount, the premium would be higher. On the other hand, the policy with a lower amount cannot bear the proportionate amount of loss. So you have to purchase two policies. One is the first loss policy and the other is excess policy. The first loss policy is going to cover the stock below which the stock won’t go. The minimum level of stock can be calculated from the experience. For the other portion of stock that exceeds the minimum limit, you can opt for the excess policy.


#7. Average Policy

This is another addition to the types of fire insurance policies. The policy has an average clause that we call average policy. For the calculation of the amount of indemnity, they consider the insured property’s value. Suppose the policyholder takes a policy for an amount less than the actual property’s value. For the amount of under-insurance, the policyholder has to contribute along with the insurer. The insurer only pays a proportion of the actual loss.


#8. Comprehensive Policy

The policy is comprehensive just as the name suggests. It provides full protection against the risk against burglary along with fire protection. Along with it, you get protection against theft, riot, lightning, civil commotion, and more. We also call this policy “All in policies”. Although, there are a few exclusions and limitations in this case.


#9. Reinstatement Policy

To avoid the conflict of indemnity, we use reinstatement policy. This policy is different from those policies that consider the market value of the property. Here, the policy reinstates the insured property loss that occurs by fire to new conditions. This doesn’t depend on its value at the time of loss.


#10. Maximum Value Of Discount Policy

Under this policy, there is no declaration or adjustment policy. The policy is taken for the maximum amount and there is the payment of full premium after that. If there is no loss by the end of the year, they return one-third of the premium to the policyholder.

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It is a bit similar to the declaration policy. It serves as a ready and rough method of coverage for the maximum amount.


Final Words

Here, the article covers the different types of fire insurance policies. There are a few others like a sprinkler, escalation, and add on covers policy. They aren’t as important as the ones that you find in this article. In case of doubt, you can ask questions through the comment section. Our team will get back with answers as soon as possible.