Question

In which type of fire policy does the insurer re-instate or replace property instead of paying cash?

Hint:

Reinstatement means the insurer puts you back in the same position by replacing or rebuilding instead of paying cash.

Answer 1

A standard fire insurance policy provides cash compensation for the actual loss suffered due to fire.
However, under a Reinstatement Policy, the insurer has the option to reinstate, repair, or replace the damaged property instead of paying cash to the insured.
This type of policy is useful for buildings, plants, or machinery, where the property needs to be restored to its original condition.
The cost of reinstatement is usually based on the current replacement cost, not the depreciated value.
Certain conditions must be met, such as prompt notice of reinstatement and completion within a specific period.
Therefore, the policy where the insurer replaces or rebuilds the property instead of paying cash is called a Reinstatement Policy.