Fire and Property Insurance
What the domain tests
This domain tests fire and property cover: the standard fire and special perils policy, property damage, business interruption, reinstatement, average, salvage, and common exclusions. Expect questions on what is covered and how a loss is measured.
Core rules and concepts
- A standard fire policy typically covers fire, lightning, explosion, and specified special perils such as storm, flood, impact, and riot, subject to the policy wording.
- Cover is for material damage to insured property. Consequential loss or business interruption is separate and covers loss of profit and increased working costs after an insured peril.
- Reinstatement may repair or replace property without deducting depreciation, but it is subject to conditions and a sum insured adequate for reinstatement value.
- Average applies to underinsurance. Salvage reduces the claim; subrogation allows recovery from a negligent third party.
- Common exclusions include war, nuclear risks, deliberate acts, spontaneous combustion, and certain electrical or mechanical breakdowns unless fire results.
Worked example
A warehouse insured for ₹1.5 crore burns, with a loss of ₹30 lakh. The property’s reinstatement value is ₹2 crore. On a reinstatement policy with average, the provisional claim is ₹30 lakh × 1.5/2 = ₹22.5 lakh, less deductible. The reasoning is that the sum insured is only 75% of the required value, so the insured bears 25% of the loss.
Traps that cost marks
Do not treat business interruption as automatically included in a fire policy. Do not apply average without checking the basis of valuation. Do not ignore salvage. Do not assume every electrical failure is a fire claim. Do not overlook the distinction between material damage and consequential loss.