Fire Insurance Policy and Compensation Calculation


In this scenario, a company has taken a fire insurance policy for rupees 8 lakhs. Unfortunately, after one month, a fire incident occurred, causing a loss of rupees 3 lakhs to the insured. The company will now receive compensation for the incurred loss based on their fire insurance policy.


The fire insurance policy provides coverage for any loss or damage caused by fire to the insured property. The policy is designed to protect the insured against financial loss due to fire-related incidents.


To determine the compensation amount, we need to understand the terms and conditions of the fire insurance policy. Typically, fire insurance policies follow the principle of indemnity, which means the insured should be reimbursed for the actual financial loss suffered.

The compensation amount is calculated using the following formula:
Compensation = (Actual Loss / Total Value of Property) * Sum Insured

In this case, the sum insured is rupees 8 lakhs, and the actual loss suffered by the insured is rupees 3 lakhs. Therefore, the compensation amount will be:
Compensation = (3 lakhs / 8 lakhs) * 8 lakhs
Compensation = 3 lakhs


The compensation amount is equal to the actual loss suffered by the insured, which is rupees 3 lakhs. This is because the fire insurance policy aims to restore the insured to the same financial position they were in before the fire incident occurred.

By providing the full compensation amount, the insurance company ensures that the insured can recover the cost of the damage caused by the fire. This helps the insured to rebuild or repair the property without facing any financial burden.


In this scenario, the company will receive a compensation amount of rupees 3 lakhs as per their fire insurance policy. The compensation is based on the principle of indemnity, which aims to reimburse the insured for the actual loss suffered. This amount will assist the insured in recovering from the fire incident and restoring their property to its previous condition.