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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Non-Life Insurance Products

In a standard Indian fire and special perils policy, which of the following is the basis on which a claim for damaged stock is normally settled if there is no reinstatement clause?

A standard fire policy indemnifies the insured for the market value of the stock at the time of loss, limited to the sum insured. It does not pay purchase price, unlimited replacement cost or expected profit, because indemnity forbids profiting from a loss.

  1. AMarket value of the stock at the time of loss, subject to the sum insuredCorrect
  2. BPurchase price paid by the insured, irrespective of the sum insured
  3. CReplacement cost with a new item at current prices without any limit
  4. DBook value after adding expected profit margin

Explanation

Fire policies are contracts of indemnity, so the insurer pays the actual loss, measured by market value at the time of loss, and never more than the sum insured. Paying purchase price or replacement cost without limit would go beyond indemnity. Adding expected profit is not allowed under a standard fire policy.

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