Irdai Mandates Option To Choose Add-on Covers With Fire Policy: What Does This Mean For You?

Homeowners will now have the option to choose add-on covers with their fire insurance policies, according to a recent mandate by the Insurance Regulatory and Development Authority of India (Irdai). The add-on covers extend to mishappenings such as floods, cyclones, earthquakes, landslides, rockslides, and terrorism. It has also stated that homeowners can opt out of their comprehensive fire and allied peril policy. A fire insurance policy typically covers damage and losses caused by fire and provides for the cost of repair and replacement, or reconstruction of property above the limit as set by the insurer.

Also Read: Port Your Health Insurance Policy To Ensure Same Coverage

“Homeowners' fire policy to have the option to choose add-on covers such as flood, cyclone, earthquake, landslide, rockslide, terrorism or to opt-out from comprehensive fire and allied peril policy,” Irdai mentioned in its circular.

Most fire insurance policies come with some or the other form of fire protection, but homeowners can still purchase additional coverage in case their property is lost or damaged because of fire.

Different types of fire insurance policies:

When it comes to fire insurance, there are multiple types of fire insurance policies available in India. These policies cater to different needs and preferences.

Standard Fire Insurance: Similar for both individuals and businesses alike, this kind of policy covers damages caused by fire and allied perils. This includes both residential and commercial structures/buildings. For individuals and businesses alike, a standard fire insurance policy is often the starting point.

Consequential Loss Fire Insurance: Under this policy, financial losses due to interruptions caused by fire are covered in addition to direct damages. Also known as fire loss of profit insurance, the policy provides coverage for the income lost due to the interruption (in business) caused by fire.

Valued Policy: This plan is very simple when it comes to claims settlement as a predetermined value for the insured property specified at the time of purchase. In the event of a fire, the insurer pays compensation depending on the agreed-upon value. Such a policy is typically used to ensure unique or high-value properties.

Floating Policy: This policy is a good option for businesses that are based in multiple locations or have properties/outlets across many areas. Floating policy covers a specified total value across multiple locations. Such flexibility is good for businesses so that they can allocate coverage as per their needs without the need to list particular/individual sums insured for each multiple/location.

Specific Policy: This policy on the other hand covers damages for a specific property based on a predetermined amount. It is good for individuals looking to insure high-value properties or assets. People who want to insure a property that has unique value or requires specific coverage should opt for this.

Comprehensive Fire Insurance: Where a standard fire insurance policy only focuses on fire and allied perils, a comprehensive policy extends beyond these perils. It comes with a cover for additional risks like natural disasters (earthquakes and floods). A comprehensive Fire Insurance policy gives a broader safety net.

What does Irdai’s mandate mean for you?

As per the new mandate by Irdai homeowners (note: not businesses) will have the option to choose additional covers with a fire policy. The cover will have add-ons for floods, cyclones, earthquakes, landslides, rockslides, and terrorism. This will be like a comprehensive policy for homeowners who can bring more coverages under the ambits of existing policy.

The mandate also allows homeowners to opt out of the comprehensive fire and allied peril policy.

Any standard fire insurance provides coverage for costs related to fire accidents, for homeowners, insurance protects against many other types of risks. Some policies cover costs associated with repairing your home including (but not always) additional expenses such as relocation.

With the new mandate, the costs (for repair and relocation) can be covered for other damages caused by natural disasters like floods, cyclones, earthquakes, landslides, and rockslides.

Remember, the insurer’s liability to cover costs of damages is usually limited by the policy value and not by the extent of damage or loss that is sustained by the property owner. In this case, you should regularly (yearly) check your home’s value to determine if there’s any need to increase the coverage amount in your insurance policy.