Fire insurance and property insurance are often used interchangeably, but they are not the same. This blog explains how each policy works, what risks they cover, how claims differ, and how startups and HR teams can choose the right coverage without risking claim rejection or underinsurance.
Both policies insure physical property such as buildings, machinery, and stock. The confusion arises because fire is included inside most property insurance policies, but the reverse is not true. Many businesses assume a fire insurance policy offers complete protection for their premises. It does not. Fire insurance is peril-specific, while property insurance is multi-risk. If a loss occurs due to theft, flooding, structural damage, or impact, a fire insurance policy will not respond, even though assets are insured.
Fire insurance is a named-peril insurance policy that covers physical loss or damage caused specifically by fire and a limited set of closely related perils listed in the policy wording. A standard fire insurance policy typically covers:
The insurer settles claims based on the sum insured, subject to deductibles, policy conditions, and loss assessment by a surveyor. Fire insurance follows the principle of indemnity, meaning it compensates for the actual loss suffered.
The scope of fire insurance is narrow and clearly defined. Coverage applies only when the cause of loss falls under insured perils mentioned in the policy schedule.
For factories, warehouses, and manufacturing units, fire risk cannot be eliminated entirely. Fire insurance ensures a single incident does not permanently damage the company’s financial position. However, it is important to note that fire insurance does not protect against operational or environmental risks beyond fire.
Selecting the right type helps prevent underinsurance, which can otherwise reduce claim payouts significantly.
Property insurance is a comprehensive, multi-risk policy that covers buildings and contents against a wide range of insured perils under a single contract.
Unlike fire insurance, property insurance is designed to address combined and overlapping risks that modern businesses face.
Property insurance works on an insured-peril basis, where multiple risks are bundled into one policy.
Note: Fire insurance claims depend entirely on proving that fire was the proximate cause of loss.
It is possible, but rarely practical. Since property insurance already includes fire coverage, holding both policies can result in:
In most cases, a well-structured property insurance policy removes the need for a separate fire insurance policy.
Fire insurance and property insurance are not interchangeable. Fire insurance offers focused protection against a specific risk. Property insurance provides broader protection against the realities of running a business.
For growing companies, the right choice is not about choosing the cheapest policy, it is about ensuring coverage responds when assets are actually at risk. If you want to learn more about what is covered under fire insurance, you can book a quick 20-minute demo with Pazcare.
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Fire insurance, generally known as the Special Fire and Special Perils is a type of property insurance that provides coverage for material damage. The main objective of fire insurance is to provide cover for your property against any physical losses, damage or destruction. The policy pays you the restoration costs, repair costs or replacement costs of the property or any part of the property.
Types of fire insurance
Fire insurance in India is broadly categorised into three based on the sum insured.
Bharat Sookshma Udyam Suraksha
This fire insurance policy covers the loss, damages or destruction to the business property like stocks, buildings, plant and machinery, fittings and fixtures and other assets of the business for a sum insured up to ₹ 5 crores.
Bharat Laghu Udyam Suraksha
This fire insurance policy covers the loss, damages or destruction to the business property like stocks, buildings, plant and machinery, fittings and fixtures and other assets of the business for a sum insured up to ₹ 5 to 50 crores.
Special Fire and Special Perils Policy
In this type of fire insurance policy, the business property like buildings, plants and fixtures, and other assets are insured against any loss or damage by the perils mentioned in the policy copy. Here the sum insured exceeds ₹ 50 crores.
The Special Fire and Special Perils are broadly categorised into:
Values Policy
In this type of fire insurance policy, firstly the value of the business property is decided. This value is not the current market value but the value the insured and the insurer agreed upon. This applies to those properties where the market value cannot be determined, for instance, old manuscripts, artefacts etc. Hence, this value will decide the sum insured.
Floating Policy
In a floating fire insurance policy, the coverage is offered to business that deals with stocks/goods present at various locations for one sum insured and one premium. This mostly applies to businesses dealing with the import and export of goods.
Comprehensive Policy
A comprehensive policy ensures that coverage is offered to fire-related perils and also offers cover against other perils such as burglary, robbery, etc.
Specific Policy
In a specific fire insurance policy, a sum insured is already decided for your business property. In case of any loss or damage to your property, the cover amount provided will be within the determined sum insured limit.
Replacement Policy
Replacement or reinstatement policy applies to buildings, furniture, machinery and fixtures. The market value of the property is determined and the insured is compensated based on the actual amount required to replace or restore the damaged property.
Consequential loss policy
This type of policy provides compensation for the consequential loss of profits or loss. For instance, a fire outbreak at a manufacturing plant can stop operations and bring down production hence, causing a loss in profits. However, the fixed expenses continue. So, this policy compensates those consequential losses by looking at a loss.
Fire insurance primarily covers damage or loss to a property caused by fire. It can also extend to include other perils like lightning, explosion, riots, and sometimes even natural disasters depending on the policy.
The main goal is to protect against financial loss from fire damage. It helps cover repair costs and ensures business continuity after an incident.
Key principles include: Insurable interest, utmost good faith, indemnity, proximate cause, contribution, and subrogation.
Yes, fire insurance is available for various types of properties, including residential buildings, commercial spaces, and industrial premises. It can also cover movable assets like machinery and equipment within these properties.
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