Fire insurance is a legal agreement between the policyholder & the insurance company which helps the insured to cover their accidental losses caused due to fire hazards. Likewise, it covers various risks like gas explosions, faulty wiring, and other unforeseen risks. The policyholder agrees to pay a pre-determined interest to the insurance company for their compensation. Furthermore, it helps in ensuring the minimal losses and safety of the insured property with equivalent compensation and returns. In general, almost all types of properties can be insured as per the agreement between both parties.
For those who are thinking of having one, the pros & cons of fire insurance are compiled to help to make decisions for yourself.
Pros of fire insurance
1. Added Security
Fire insurance helps provide additional comprehensive protection against all fire hazards. Consequently it helps to minimize the risks and helps provide ease of mind to the insured. Added security is always better than no security. It is most important in places where fire hazards are frequent thus resulting in safer investment opportunities.
2. Proper compensation
In case of any fire hazard, the insurance company is liable for the compensation of the damage to the insured property. Thus it also acts as a source of capital for the rebuild after the destruction. Similarly, it also helps to protect small-scale organizations from being liquidated after the damage.
3. Risk sharing
Risk sharing is one of the most important benefits of fire insurance. The insurance company also bears risk of the insured property after the agreement between both parties. Additionally, it can also encourage people to increase investment as the risk factor is kept at a minimum due to the insurance policy.
4. Personal right
In case of any loss of the insured property, the insurance can only be claimed by the insured or his/her delegates. The insurance company is not liable for payment to any other person other than the insured for the compensation
Cons of fire insurance
1. Insurance premium
The insurance premium can be expensive as per the probability of fire-related accidents. The places with higher risks of fire hazards like factories are quite expensive to insure. Furthermore the insurance company can also charge additional amount if needed for the insurance of high risk assets.
2. Exclusion form claim
In the worst-case scenario, the insurance company can decline the claim of the insured. Furthermore, it can also provide unequal compensation to the insured which can result in the diminishing faith of people in fire insurance as a whole. On the other hand, the insured can also willingly destroy the property and file a fake claim, which can result in the termination of the insurance claim.
The insurance company can delay the payment to the insured party for their loss due to a fire hazard. Sometimes it may take even a year or more for payment of the claim to the insured. These types of activities discourage people from purchasing insurance policies in the future. Additionally, it can also take a lot of time to claim the insurance due to various lengthy legal formalities.
As there are various reasons for the fire hazards, the insurance company can also deny paying the claim for various unspecified reasons not stated in the agreement. For example, the company can deny payment for the loss of the insured if the cause of the fire is a recent earthquake. You need to purchase additional insurance policies for protection against such natural calamities.
Fire insurance is a safety net which protects us from unforeseen losses. Likewise, it is important to look at the bigger picture & have insurance so as to minimize losses in the future. As the saying goes “it’s better to be safe than sorry”, it shouldn’t hurt to have an extra layer of security for our belongings.