What Is Fire Insurance?
Fire insurance provides financial compensation if you experience a partial or total loss due to accidental fire.
Most homeowner, condo, and renter policies include fire insurance as a standard part of your policy.
Common perils covered include lightning, cooking fires, electrical fires caused by faulty wiring or appliances, gas leaks, smoke damage, and more.
Typically, coverage pays for the repair, replacement, or reconstruction of your home, and other structures on your property back to their previous condition before the fire.
It also pays for the replacement or repair of your personal belongings.
Every policy has property and personal belongings coverage limits.
Some policies may protect you even if the underlying cause isn’t included in your policy.
As an example, you could be covered if a natural disaster triggered a fire.
Some policies also provide additional living expenses coverage.
This pays for alternative accommodation when you cannot live in your home.
It may also pay for meals and some transportation costs.
Insurers also offer stand-alone fire insurance policies specifically designed to cover losses caused by fire.
These cover accidental fire damage, fire department water damage, and property damage while putting out the fire.
However, they do not provide the other coverages found in a homeowner’s, condo, or renter’s policy.
Standalone policies don’t protect your property or belongings from damage caused by a burst pipe, vandalism, theft, or storm damage.
They don’t provide liability coverage either.
Consequently, these policies best suit those who have the resources to repair or rebuild all fire damage, except the most severe.
Obviously, this can be very costly.
In other cases, a homeowner’s or condo policy is generally a better option since it offers broader coverage.
Some insurers may not offer coverage if you decide to buy a property within a wildfire-prone area.
How Fire Insurance Works
If you experience a loss, you must notify your insurer immediately.
They will open a claim and send out an insurance adjuster.
The adjuster will consult with contractors and estimate the cost of damages.
You pay your deductible and your insurance company pays the remaining costs, up to your policy’s limits.
Most insurers offer discounts if you install fire-related home security features such as a sprinkler system, fire alarm system, and on-site extinguishers.
The cost of fire insurance depends on many factors, but the most important is the estimated value of your property.
What to be Aware of When Insuring for Fire
Almost all homeowner and condo policies are based on actual cash value.
The insurer estimates the value of your property, less depreciation.
This may not mean much until you file a claim.
Your insurer will calculate the loss value, less depreciation, and provide you with an offer.
If agreed, they will issue an initial payment.
Once you pay for repairs or replacements and submit your receipts, they pay the remaining balance.
You pay out-of-pocket for the difference between the insurer payout and the total cost to repair or replace your property.
As a result, if you experience a major loss, it could cost you a substantial amount incremental to the payout you receive from the insurer.
Insurers also offer replacement value policies.
Claims cover the lesser cost of replacing or repairing your property.
They do not deduct depreciation, but these policies are more expensive.
In both cases, it is extremely important you have a home inventory.
This inventory can provide proof of loss and speed up the claims process.
You should also tap into the expertise of an insurance professional such as an agent or broker.
They provide free advice and work for you – not the insurance companies.
They can determine the replacement cost of your property and the appropriate policy for your needs.
Homeowner, condo, and fire insurance policies are not standardized.
They include various clauses, exclusions, and exceptions that can lead to very different results.
For instance, some homeowner and condo policies exclude wildfires.
Some limit the amount you can claim for fire-damaged landscaping.
Almost all exclude coverage for an empty (vacant) home.
Another common exclusion is fire caused by poor home maintenance.
Providing inaccurate initial information or during the claims process can also lead to a claim denial.
Frequently Asked Questions
- Is fire insurance different than homeowners?
Yes, you can buy a standalone fire insurance policy that only protects your property from fire. However, it doesn’t cover other risks such as liability, theft, vandalism, or storm damage.
Consequently, it usually isn’t the best choice for protecting your property. A possible exception is when the property owner is unable to buy a standard policy, because they live in an area at a high risk of fire.
All standard homeowner, condo, and renter policies include fire insurance and offer other coverages too. When possible, they are the better choice over a standalone policy.
- Who is liable for fire damage?
If the fire is found to have been caused by another party’s actions or negligence, they are responsible. Your insurance carrier will try to recoup any costs involved in the claim, including your deductible.