What Is Covered Under A Fire Insurance For Factories?


Fire accidents are common in industries and manufacturing units. Even a small short circuit can destroy huge factories and buildings, resulting in huge financial losses, destroying years of savings, and setting a business back by years. Damage caused by a fire accident also requires substantial investments to start it all over again at a time when there is a lack of resources due to the fire. That is why you should plan to get fire insurance for the factory to handle such intense situations effectively.

A fire insurance policy compensates the insured party on account of any fire-related damage suffered to the insured property. Hence you should get fire insurance for the factory to protect all your assets. This insurance policy will offer you coverage against various perils apart from the basic cover against fire, including strikes, riots, malicious damage, explosion or implosion, lightning, storm, tornado, hurricane, cyclones, floods, inundation, landslides, rock slides, subsidence, bursting or overflowing of water tanks, pipes and apparatus, missile test operations, and impact damage. Impact damage is a very important cover under the policy that includes loss or visible damage to the insured property resulting from any road or rail vehicle or animal, excluding any vehicle or animal owned by the insured, which is covered as a separate add-on cover.

What Is Not Included In A Fire Insurance Policy?

It would be best to remember that the fire insurance policy does not cover loss or damages caused due to war or related perils, nuclear perils, or pollution. It also does not cover any loss or damage to stocks in cold storage premises due to changes in temperature and to any electrical machine caused due to short circuits, over-running, and electricity leakage

So the basic coverage of a fire insurance policy is the material damage caused by a fire but excludes damage caused due to its own fermentation, spontaneous combustion, and natural heating if it is undergoing any heating or drying process, and burning of insured property by order of any public authority. Any damages caused due to explosion or implosion will be covered, excluding damage to boilers, economizers or other vessels, machinery or their contents, as well as damage caused by centrifugal forces. Another coverage offered by a fire insurance policy is aircraft damage which involves loss, damage or destruction caused by aircraft and other aerial or space devices, as well as the articles dropped from them, except those caused by pressure waves. 

The riots, strikes and malicious damage cover does not include damage caused by the total or partial cessation of work, permanent or temporary dispossession caused due to confiscation, requisition or destruction by Government’s order or other lawful authority, permanent or temporary dispossession of any building, plant or machinery resulting from unlawful occupation, burglary, theft, housebreaking, larceny and other such attempts. Subsidence and landslide cover will not cover loss resulting from normal cracking, settlement or bedding down of new structures, coastal or river erosion, movement or settlement of made-up ground, and defective design or use of faulty materials. Moreover, leakage from automatic sprinkler installation results from any repairs or alterations to the building premises, removal or extension of sprinkler installation, and construction defects. 

What Are The Add-on Covers?

The standard fire and special perils insurance policy also offer add-on covers that require you to pay additional premiums. These add-ons include damages due to earthquakes, terrorism, storm, hurricane, tornado, cyclones, tempests, floods, and inundations. Some fire insurance plans include the architect’s and surveyor’s fees, debris removal, escalation, spontaneous combustion cover, forest fire, start-up expenses, and omission to insure additions, extensions, or alterations. 

You can insure all types of assets by taking a fire insurance policy for various types of assets, including residential or commercial property buildings, factories, stocks and inventory, and furniture, fixtures and fittings. The premium for a fire insurance policy depends on factors like the perils to be covered, the sum insured of the property, location details of the property, risk occupancy of the property, and the add-on covers selected as a part of the fire insurance policy. 

If you want to calculate the sum insured under the fire insurance policy, there are two ways of doing it. The first is the reinstatement value method, under which the insurance company will pay the cost of replacing the damaged property with a new one if claimed. This means that the depreciation is not levied on the property value. However, this method only applies to fixed assets and not stocks and contents.

The second method is the market value method, under which the insurance company pays the market value or depreciation of the insured property if claimed. The depreciation is levied on the asset depending upon its stage. 

Bottom line

Remember that in addition to buying fire insurance coverage, it is also important to opt for appropriate add-on covers depending on the industry and business type to get comprehensive coverage. Also, make sure that you understand the add-ons in detail.


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