Fire is one of the most important and valuable gifts of nature to us. It has important place in human life, because fire plays a vital role. However, it has also been the risk of human life and property.
Therefore, fire insurance has evolved for protecting human lives and properties from the risks of fire.
Fire insurance is a contract of indemnity against loss or damage of the properties arising from fire during an agreed period of time and up to the specified amount. Fire insurance is such an agreement whereby one party, the insurer, in return for a consideration called premium, undertakes to indemnify another party, the insured, against financial loss caused by an event of fire to the extent of actual loss or insured amount whichever is lower. The insured party has to pay the premium and the insurance company agrees to indemnify the insured. The rate of premium depends on the level of estimated risk. Premium will be high if the risk is higher and will be low if the risk is low.
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Fire insurance covers losses only incurred due to fire. It cannot be for profit making.Therefore, the principles if investment and protection are not applied to fire insurance. In the fire insurance contract, only such loss is covered which directly arises through fire.
Therefore, fire insurance is a contract between an insurance company called insurer and a person called insured for compensation of loss of properties caused by fire, in which the former pays the amount of loss to the latter as agreed upon by the two.
