Q.What is fire insurance? Explain its essential features.

Fire insurance is a general-insurance contract, so it works on indemnity rather than on a fixed assured sum.

Meaning. Fire insurance is a contract in which the insurer, in return for a premium, agrees to indemnify the insured against loss or damage to property caused by fire during a stated period, up to the sum insured. Buildings, machinery, stock, furniture and goods can be so insured, often with allied perils (explosion, riot, flood) added.

Essential features.

1. Contract of indemnity — the insured recovers only the actual amount of loss, never more than the sum insured; he cannot profit from the loss.
2. Insurable interest — the insured must have a financial interest in the property both when the policy is taken and when the loss occurs.
3. Utmost good faith — all material facts about the property (its nature, use, construction, hazards) must be disclosed truthfully.
4. Meaning of "fire" — for a valid claim there must be actual ignition (visible flame or burning), the fire must be accidental (not deliberately caused by the insured), and the loss must be a direct consequence of the fire.
5. Proximate cause — the fire must be the nearest effective cause of the loss. …

A common error is to say the insured gets the sum insured on any fire — he gets only the actual loss (indemnity). Also, mere heating or scorching without ignitio …