For most of us, the thought of a fire starting in our home or business is terrifying. Not only can fire quickly destroy property, it’s frequently deadly as well. The National Fire Prevention Association reports an average of 357,000 residential fires each year. In the U.S., seven people die each day on average in home fires. In addition to fire safety planning and prevention, another way to protect yourself from the devastating effects of a fire is by making sure you are covered by comprehensive fire insurance.
What Residential Fire Insurance Covers
Fire insurance provisions are often contained within homeowner insurance policies, but they can also be purchased as stand-alone policies. Fire insurance will cover damage to or loss of property due to the fire itself, smoke damage, and water and other damage caused by firefighters. Fire insurance is intended to reimburse you for the replacement, repair, and reconstruction of your home. The specifics of fire insurance will vary, and coverage limits will depend on the cause of the fire.
Fire insurance will typically pay out to cover the following:
- Your dwelling: Most importantly, fire insurance will pay for you to re-build or repair your home after it is damaged by fire, smoke, or water damage.
- Other structures: Some fire insurance policies also cover nearby structures, including garages, sheds, and pool houses.
- Personal property: Also covered are all of the items inside your dwelling, including your personal belongings, furniture, paintings, jewelry, and clothing.
- Loss of use: Fire insurance will also often reimburse you for the typical expenses incurred as the direct result of a fire, including temporary housing, clothing, food, and boarding of pets.
Theories of Reimbursement
How does an insurance company value your home and your personal property? There are two main methods of valuation: actual cash value and replacement value.
The actual cash value is defined as the fair market value of the property in question at the time of loss. If you are reimbursed based on this theory, you may be left at a significant disadvantage following a fire. Items like clothing and furniture typically don't have a very high value when used (unless they are vintage or antique). If you receive only the fair market value of your belongings, you may not be able to replace all of the items that you lost.
On the other hand, the second method of reimbursement is based on replacement value, meaning you'll receive the full value of what it would cost to replace or repair the item. Under this valuation theory, you will be made "whole" to the extent possible. The significantly different outcomes between these two theories of reimbursement make it clear why it's important to understand how your fire insurance policy would reimburse you for your loss.
Commercial Fire Insurance
Fire can devastate a business as quickly as it can a home, and for this reason, it's important for businesses to carry a prudent level of commercial fire insurance coverage. Without fire insurance, a business may not have the resources to rebuild in the event of a catastrophic event. An important element of commercial business insurance is to have an accurate valuation of the business. Under-valuing a business could lead to an owner being under-paid following a fire.
Commercial fire insurance also offers coverage that is unique to different types of businesses. This includes specialized coverage for items such as money and securities, valuable documents, jewelry, and aircraft. Another valuable type of insurance to consider is business income insurance, which reimburses owners for the lost income that results when a business is forced to shut its doors and rebuild after a fire.
Speak with a Lawyer About Fire Insurance
To recover from the devastating effects of a fire, it's important to plan ahead and be sure you have an appropriate level of insurance coverage. If you need help with fire insurance legal issues, you may want to seek the advice of a lawyer. FindLaw can help you find a great insurance law attorney in your area.