Accidents are unpredictable, but taking precautions to face them will be wise for resuming life afterwards. Insurance policies can help people to get back to life fast after an accident through the coverage of losses ensured by insurance.
Fire insurance and life insurance are two significant types of insurance one may need to take to protect their life and properties.
Key Takeaways
- Fire insurance protects the property against loss or damage due to fire; life insurance provides financial protection for beneficiaries upon the policyholder’s death.
- Fire insurance claims are based on the value of the damaged property; life insurance claims depend on the policy’s coverage amount.
- Fire insurance is primarily for homeowners and businesses; life insurance is for individuals seeking financial security for their dependents.
Fire Insurance vs Life Insurance
The difference between Fire Insurance and Life Insurance is that fire insurance covers the losses caused by the properties of the policyholder. In contrast, life insurance covers the losses that happen to the person of the policyholder.
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Comparison Table
| Parameter of Comparison | Fire Insurance | Life Insurance |
|---|---|---|
| Definition | An agreement assures the policyholder that the insurance company will cover fire-related accidents. | An agreement upon which an insurance company is obligated to pay a lump sum either on the client’s death or on the policy’s maturity. |
| Insurance holder | Exporting and importing business owners, shipping companies, and fire insurance can be taken. | A person can take life insurance for his own life or family members. |
| Duration | Fire insurance is for a short-term period, such as one year or less. | Life Insurance policy can be taken for any time or until the policyholder’s death. |
| compensation | Compensation is provided only if there is a fire accident during the period of Insurance. | Life insurance is given either on the policy’s maturity or on the person’s death or whichever comes first. |
| Policies | Only a single policy can be taken, but the option for double insurance is available. | No limitation to the number of policies. |
What is Fire Insurance?
Fire insurance is the kind of property insurance that compensates for the losses and destructions created by fire. Acquiring fire insurance and property insurance is beneficial for property owners to get coverage for repairing, rebuilding, and replacement costs over the regular insurance policy limit.
Usually, fire insurance cannot cover the losses created by nuclear risks, wars, and other similar disasters. Fire insurance is a particular insurance policy that may cover the damages and harm caused by a structure by a fire accident.
Even though home insurance may cover fire damage for a specific limit, separate fire insurance is necessary to match the cost of the total losses created by a fire accident. When a regular insurance policy’s fire coverage is less extensive, or there is no coverage, people may need separate fire insurance, especially if they have valuable items that cannot be covered by regular insurance coverage alone.
The liability of an insurance company is restricted by the policy’s value and is never based on the loss or damage of the property. Typical fire insurance pays for the damage that prevents the owner from using the property further and also for the living cost because of a necessity due to the unhabitable conditions resulting from the fire.
It comprises the personal property and nearby structures associated with the original property on which a person purchased the fire insurance. It is vital for the policy owners to correctly document all the items of the property and its assets to simplify the damage assessment after the fire accident.
A fire insurance policy contends extra coverage is required against smoke and water damage created by the fire and is valid for one year. Fire insurance policies nearing the expiry date can be renewed by the policy owner based on the terms of the original policy.
A fire insurance policy can cover the damages created by electricity, an explosion of gas, lightning, bursting and overflowing of water pipes, and other similar natural disasters. The limit of fire damage depends on the cause of the fire.
The fire policy reimburses the holder of the fire insurance policy based on the cost of replacement and actual cash value based on damages. Two conditions should be considered while claiming fire insurance.
There should be actual loss created by fire, which is caused accidentally.
What is Life Insurance?
A life insurance policy is an agreement between a client and an insurance company. In response to the premium payments made by the client, the company is obligated to pay a specific amount of money upon the client’s death to the beneficiaries of the policyholder.
The death benefits of almost all kinds of insurance policies are tax-free. The wide varieties of insurance policies include term life insurance, universal life insurance, and whole life insurance.
Term Life Insurance: – It gives protection for a predetermined duration, say ten to twenty years. In conventional term insurance, the premium amount is the same for the client’s selected coverage period.
After the coverage duration of the term insurance, if the policies need to be continued higher premium amount may require. Term life insurance policies are less expensive.
Its reimbursements are paid at one time as a lump sum.
Universal life insurance: – It provides lifetime coverage. It is more flexible than term insurance, and a person can lower or raise the premium payment and coverage anytime.
Because of the lifetime coverage, premium payments can be made for universal life insurance. It is commonly used as part of a flexible strategy for estate planning to protect wealth to be shifted to the recipients.
It is also used as an income replacement for long periods when a person requires it beyond their working years.
Whole life insurance is one of the permanent life insurances intended to give lifetime protection. The premium payment of the whole life insurance is fixed.
It is an insurance beneficial for estate planning to protect the wealth when a client plans to transfer it to their beneficiaries.
Main Differences Between Fire Insurance and Life Insurance
- The main difference between Fire Insurance and Life insurance is protecting the properties in case of fire accidents. Still, life insurance covers the loss of life or damage to an individual who holds the policy.
- Fire insurance is for a short duration, whereas life insurance is for a lifetime or until the policy’s maturity.
- A person can take only one Fire insurance policy, but there is no limitation on the number of policies in the case of life insurance.
- Fire insurance provides coverage to properties, whereas life insurance provides coverage to the life of an individual.
- There is no option of surrender in fire insurance, but life insurance can be surrendered upon fulfilling certain conditions.
- https://www.eh.net/page/97/?s=The
- https://www.jstage.jst.go.jp/article/jaee2001/4/3/4_3_154/_article/-char/ja/
- https://authors.library.caltech.edu/9570/1/CABjpe03.pdf
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
