Different Types Of Fire Insurance Policies in India

Entrepreneurs invest crores of rupees in their factories in terms of factory buildings, plant and machinery and stocks stored in warehouses.

Any damages in terms of fire, earthquakes, storms etc can result in huge financial losses. Given the huge monetary investment, it is necessary to have a comprehensive factory insurance policy to protect against various risks.

A Fire insurance Policy pays the Insured Party for damage caused to the insured assets on account of a fire-related accident. A Fire Insurance Policy offers coverage against a range of perils such as Fire, Explosion/Implosion, Earthquake, Terrorism, Storm, Tempest, Floods Inundation. Thus, Fire Insurance Coverage is not restricted only to fire coverage. You can read our detailed blogpost on coverages in a Fire Insurance Policy to learn more.

Given the varied nature of manufacturing operations, there are different types of factory insurance policies that are suitable for different type of factories. Some policies will be suitable for warehouse stock insurance (inventory stock stored in warehouses) while other policies will be suitable for multiple manufacturing sites.

In this article, we try to provide an overview of different types of fire insurance policies for factories:

What are the Different Types of Fire Insurance Policies in India?

The various types of fire insurance policies are as follows:

1. Stock Declaration Policy

A Stock Declaration Policy is provided by attaching a declaration clause to a Standard Fire Insurance Policy when there are frequent fluctuations in stock values at the Insured Godowns. This Policy is only given with a minimum Policy Sum Insured of Rs1 crore at one or more location and the Sum Insured should not be less than Rs25 lakhs in at least one of the locations.

The Insured has to make monthly declarations of stock values based on the average of the values at risk on each day of the month or the highest value at risk during the month latest by the last day of the succeeding month.

If the declarations are not received within the specified time period, the full Sum Insured under the policy shall be deemed to have been declared. An advantage of this policy is that it allows a maximum refund of 50% if the Declared Sum Insured is less than the Policy Sum Insured.

2. Floater Policy

Factory Owners can choose a floater policy when their inventory stocks are stored at different specified locations and insured under a single Sum Insured under the Policy. A Floater Policy allows the factory owner to insure the goods are at different warehouses together under a single policy and a single Sum Insured.

Another advantage of a Floating Policy in Fire Insurance is that the Insured need not separately declare the value of stock at each location but he can declare a single value for the total stock value at all the specified locations declared under the Policy. 

The Sum Insured under the Floating Policy in Fire Insurance is the sum total of Sum Insured at all locations. A 10% loading will be applied to highest applicable rate at any location if differently rated goods are stored. Another point to note is that no unspecified locations can be covered under the Floating Policy.

3. Floater Declaration Policy

A Floater Declaration Policy in Fire Insurance is given to owners who store their goods at different warehouses across the country and there are frequent changes in stock value throughout the year. The minimum Sum Insured required for this policy is Rs2 crores. This type of Policy requires the Insured Party to make monthly declaration for the overall stock value for all locations and also allows a refund upto a maximum of 20% of premium paid if the yearly average of stock values is lower than Policy Sum Insured.

4. Agreed Value Policy

An agreed value policy is different from other types of fire insurance policy in that it does not work on the principle of indemnity. Under an agreed value policy, the value of the goods to be insured is pre-decided and this is the value that the Insurance Company will be liable to pay if the Insured good is damaged or destroyed.

Agreed Value Policy is issued only for Properties whose market values are difficult to determine such as Artworks, Curios, Manuscripts or obsolete machinery. An Agreed Value Policy in Fire Insurance would require a Valuation Certificate to be submitted and found acceptable by the Fire Insurance Company.

5. Business Interruption Policy

A Business Interruption Insurance Policy is a very important addition to a normal fire insurance policy and it pays for the loss of gross profit faced by the factory owner when the plant and machinery in the factory is destroyed by an insured peril. A Business Interruption Policy will help to cover fixed charges such as Interest Payments on Loans, Employee Salaries etc as the factory won’t be earning any revenue when it is damaged in a Fire Accident.

6. Average Policy

An Average Policy in Fire Insurance will have an average clause applicable to the fire policy. The average clause in Fire Insurance Policy will come into play when the Insured Party has underinsured the property by declaring a lower Sum Insured than the actual value of the property which is to be insured. As a result, the insurance company is denied of its rightful premium since it charges a premium on the lower sum insured which is declared.

In such a scenario, the insurance company will penalize the Insured Party in case of a claim by reducing the claim amount on a pro-rata basis. For example: If an Insured has declared the property value of Rs50,000 to the insurance company when the actual property value was Rs100,000, then, in case of a claim of Rs20,000, the insurance company will pay only 50% of the claim amount ie Rs10,000 since the Insured had under declared the property value to the tune of 50%.

Who should purchase a Fire Insurance Policy?

Anyone who has insurable assets which can be destroyed by fire and its associated perils should purchase a Fire Insurance Policy.

Usually, the following purchase various types of fire insurance policies mentioned above:

• Commercial Buildings, Housing Societies
• Godown owners and Factory Owners
• Manufacturing Firms, Factory Owners
• Homeowners purchase fire insurance for their homes
• Other businesses such as Schools, Restaurants, Hospitals, Clinics, Clubs etc

Conclusion:

Selecting an appropriate factory insurance policy is of utmost importance. It is prudent to take the assistance of an experienced insurance broker as the broker will customise the policy to include the important add-on covers in a Fire Insurance Policy to suit the requirements of your business. Also, make sure to pay special attention to the exclusions in Fire Insurance Policy to avoid unwanted surprises later on. If you are looking to purchase a Comprehensive Fire Insurance Policy for your business, feel free to reach out to us at insurance@qian.co.in or call us on 022-22044989. We would be glad to help you out.

1. What is a Fire Insurance Policy?
2. What is the need for a Standard Fire and Special Perils Insurance Policy?
3. What are the Perils covered under a Fire Insurance Policy?
4. What are the Principles of a Fire Insurance Policy?
5. Principle of Insurable Interest
6. Principle of Utmost Good Faith
7. Principle of Proximate Cause
8. Principle of Indemnity
9. Principle of Subrogation
10. Principle of Contribution
11. What are the Add-On Covers available in a Fire Insurance Policy?
12. Types of Fire Insurance: What are they?
13. Stock Declaration Policy
14. Floater Policy
15. Average Policy
16. Agreed Value Policy
17. What is Bharat Sookshma Udyam Suraksha Policy?
18. What is Bharat Laghu Udyam Suraksha Policy?
19. What can be Insured with a Fire Insurance (Standard Fire and Special Perils) Policy?
20. How is the Premium calculated under a Fire Insurance Policy?
21. How to fix Sum Insured under a Fire Insurance Policy?
22. What are the Exclusions in a Fire Insurance Policy?
23. How to Claim Fire Insurance?
24. Get the Best Quotes for Fire Insurance Policy
25. FAQS
26. Testimonials