Fire Policy

A fire policy, formally known as the Standard Fire and Special Perils (SFSP) policy in India, is one of the most fundamental forms of commercial property insurance. Governed by IRDAI regulations, this policy covers damage to buildings, machinery, stock, furniture, and other business assets caused by fire and a range of allied perils including lightning, explosion, implosion, aircraft damage, riot and strike damage, storm, tempest, flood, inundation, earthquake, and malicious damage. The SFSP policy follows a standardised wording approved by the erstwhile Tariff Advisory Committee, though post-detariffing in 2007, insurers have flexibility in pricing while retaining the standard coverage structure. Indian businesses are required to declare the sum insured based on the reinstatement or market value of assets. The principle of indemnity applies, meaning the insurer compensates only the actual loss suffered, subject to the sum insured and any applicable underinsurance through the average clause. Add-on covers such as loss of profits (consequential loss), terrorism cover, and spontaneous combustion can be attached to the base policy. For businesses operating in leased premises, the policy can be structured to cover tenant's improvements and alterations. Under the Goods and Services Tax regime, input tax credit considerations also affect the sum insured calculations. Fire policies are critical for businesses seeking bank finance, as lenders invariably require adequate fire insurance as collateral protection for hypothecated or mortgaged assets.