What Is Fire Insurance?

Fire insurance is a type of property insurance that pays for damages and other losses caused by a fire. It covers the cost of repairing or replacing damaged property in your home, as well as living expenses if you are forced to relocate while your home is unusable.

Definition and Example of Fire Insurance

Fire insurance covers the costs of property damage caused by a fire. It also covers your personal belongings and lodging and meal expenses above and beyond your normal living expenses, up to the policy limits. The deductible and coverage limits are the same as the rest of your policy.

Any detached structures on your property, such as sheds, fences, or detached garages, are frequently covered. Some policies will also cover landscaping costs, such as tree and shrub damage.

According to the National Fire Protection Association, between 2015 and 2019, fire departments in the United States responded to approximately 346,800 house fires. Most homeowner's insurance policies include fire protection, but there are some exclusions. It's critical to understand what yours entails and your options for protecting your home.

How Fire Insurance Works

To get damages covered in the event of a fire on your property, you must file a claim with your insurer. Take pictures of all damage to help you document your claim. A claims adjuster will be sent to your home to assess the damage. When they arrive, verify their identity because scams do occur. Take them on a tour of your property to ensure they see everything. If you have photos from before the damage, those can be useful.

Examine the estimate you receive from your insurer. Check it against your policy terms to ensure that it corresponds to what you paid for.

Your homeowner's policy will cover fire damage to your home up to the policy limits. However, most policies exclude damage from war, nuclear radiation, and other associated risks.

If a homeowner intentionally sets fire to their home, the damage will not be covered. Damage to a vacant home is also not covered, at least if the home had been vacant for more than 30 days prior to the fire. If you want to cover a home that isn't being lived in, you can purchase a "vacant homeowners insurance policy."

Depending on where you live, your policy may also exclude or charge higher premiums for other events. If you live in a high-risk wildfire area, you may be subject to certain restrictions.

Extra fire insurance can be purchased in addition to your homeowner's policy to cover damages that your standard policy does not cover.

Replacement Cost vs. Actual Cash Value

Determine whether your policy pays actual cash value (ACV) or replacement cost for fire-damaged property. ACV coverage may not be sufficient to replace items lost at current market value. However, you may be able to add a rider to your policy that will cover the replacement cost. This allows you to replace your items with new ones of the same quality, but your premium will be higher as a result.

When it comes to rebuilding your home, the difference between actual cash value and replacement cost is also important. The cost of rebuilding may be significantly higher than the home's actual cash value. Make sure you understand exactly what your policy covers.

Types of Fire Insurance

Fire insurance may not be required for business owners who own tangible property. Fire damage to a business is frequently covered under a standard business owner's policy. This includes building damage, attached and detached structures, office equipment, and inventory.

Most owner's policies will also cover additional operating expenses if you need to relocate your business. Maintain an up-to-date inventory of business equipment and other valuables. You should also keep important documents off-site to avoid having them destroyed in a fire.

Do I Need Fire Insurance?

One of your most important investments is your home. Fire insurance, which is included in homeowner's insurance, can protect you from financial ruin.

Depending on where you live, having fire insurance may become even more important. In recent years, areas such as California have seen an increase in wildfires. Since 1950, the area burned by California wildfires has increased, and eight of the state's 20 largest wildfires have occurred since 2017.

If you have a mortgage, your lender will require you to purchase homeowners insurance. Even if you own your home outright, it's a good idea to have it in place. Even if you own your home outright, insurance will protect your finances and assets in the event of a disaster.

Homeowners insurance is required unless you can afford to rebuild your home and replace your belongings out of pocket. Make certain that it includes fire insurance so that you are protected in the event of an emergency.