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    What is Indemnity & How is Indemnity Estimated in Fire Insurance?

    Fire is a hazardous incident that can cause significant damage to property and assets. For this reason, individuals and entities prefer to invest in fire insurance plans. 

    The main purpose of SME insurance for businesses, such as fire insurance and burglary insurance, is to offer financial assistance to businesses during mishaps. The financial aid offered under the insurance plan helps keep the business operations up and running. 

    However, before buying fire insurance, businesses need to know about various intricacies associated with insurance coverage, such as indemnity. Let us explore the concept of indemnity in fire insurance and how it is calculated in detail.

    Understanding Indemnity Meaning in Fire Insurance

    The indemnity in fire insurance aims to restore the policyholder to their actual financial position before the fire loss without making any profit from the insurance coverage. The principle of indemnity in a fire insurance policy ensures that the policyholder does not recover more than the actual loss suffered by them. 

    It focuses on preventing profiting from fire insurance coverage. In simple words, the compensation received under the fire insurance policy can not exceed the actual value of the asset.

    For instance, if a company insured for ₹30 lakh suffers fire damage of ₹10 lakh, the insurance provider will compensate only the amount suffered, which is  ₹10 lakh, not the full sum insured, as per the principle of indemnity in a fire insurance plan.

    How Indemnity is Estimated in Fire Insurance?

    Indemnity in fire insurance can be easily determined. Below are the steps needed to calculate it.

    Step 1: Assessment of the Loss

    The very first step in estimating the indemnity in fire insurance is assessing the loss or damage caused by the fire. The insurance provider appoints a loss assessor or surveyor to inspect the damaged property. The policyholder needs to provide the proper documentation, such as inventories, receipts, invoices, photographs, etc., to the surveyor.

    Step 2: Valuation of the Property

    Once the assessment of the property is done, the insurance provider determines the value of the damaged property. This involves assessing the current market value, the cost of replacement, or any value that was pre-agreed in the policy. The valuation sets the basis for calculating the compensation.

    Step 3: Dedication for Depreciation

    Depreciated value is calculated based on the property’s age, condition and usage. This just ensures that the policyholder does not profit from the loss; rather, he is fairly indemnified for the value of the property at the time of the fire.

    Step 4: Following the Policy Terms and Conditions

    The next step is executing the policy terms and conditions. This includes verifying the sum insured, deducting any salvage value and adding any policy excess or deductible and more. These are then used to calculate the ultimate claim paid to the insured.

    Step 5: Claim Settlement

    Once the indemnity amount is finalised, the insurance company proceeds with the claim settlement. The insurance provider prepares the final claim report and communicates the approved compensation to the policyholder. If the insured agrees to the amount, the payment is made either through a bank transfer or a cheque.

    Tips to Ensure Proper Indemnity Coverage

    To obtain the correct indemnity coverage, it is essential to buy a fire insurance policy with a reliable provider like TATA AIG that offers prompt claim settlement, expert loss assessment and dependable customer support in times of need. Here are some tips to ensure the proper indemnity coverage:

    • Select the right sum insured when taking the fire insurance policy. If you are underinsured it can lead to partial claim settlement and overinsuring can lead to increased premiums.
    • While buying fire insurance plans, it is important to know all about the exclusions. These are generally perils that are not covered under the policy.
    • To make the indemnity in fire insurance easy, keep records of all inventories and property ownership. This eases the claim settlement process.
    • Lastly, proper risk mitigation measures, such as fire alarms, security systems, etc., are also crucial to prevent huge losses and lower premiums.

    Conclusion

    The indemnity in fire insurance is a crucial aspect that helps policyholders receive fair compensation in the event of loss or damage caused by fire. It also prevents insurance providers from paying excess amounts to the policyholder. 

    That is why, while purchasing a fire insurance plan, you need to check if the indemnity applies or if you are adequately covered.

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    Josie Patra
    Josie Patra is a veteran writer with 21 years of experience. She comes with multiple degrees in literature, computer applications, multimedia design, and management. She delves into a plethora of niches and offers expert guidance on finances, stock market, budgeting, marketing strategies, and such other domains. Josie has also authored books on management, productivity, and digital marketing strategies.

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