Fire Insurance

For most of us, the thought of a fire starting in our home or business is terrifying. But it is all too common. The latest statistics from the U.S. Fire Administration report 353,500 residential fires in 2021, resulting in billions of dollars in losses.

Protecting your assets with property insurance in the event of a fire is critical. The standard homeowners insurance policy typically includes fire insurance coverage. Most homeowners do not need separate fire insurance to protect against fire damage.

When a fire damages a car, you can turn to an auto insurance policy if you buy additional coverage or have comprehensive coverage.

What Residential Fire Insurance Covers

Homeowners insurance policies often include fire insurance provisions. Home insurance that offers fire protection will usually cover personal property damaged or destroyed in a fire.

A fire policy covers the costs of repairing or replacing damaged property. Policyholders can expect personal property coverage and dwelling coverage up to the policy limits.

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 seeks to reimburse you for replacement costs, repair, and reconstruction expenses for your home. The specifics of fire insurance will vary. Coverage limits will depend on the cause of the fire.

Fire insurance will typically issue a payout to cover the following:

• Your dwelling coverage: Most important, fire insurance will pay for rebuilding or repairing your home after it gets damaged by fire, smoke, or water damage.
• Other structures: Some fire insurance policies cover nearby structures, including garages, sheds, and pool houses.
• Personal property: Covers items inside your dwelling, including personal belongings, furniture, paintings, jewelry, and clothing.
• Loss of use coverage: Fire insurance will also often reimburse you for the typical additional living expenses incurred as a direct result of a fire, including temporary housing, clothing, food, and pet boarding.

Following a fire, the fire insurance company issues a payout based on an appraisal of the damaged or lost items. The insurance company's adjuster investigates to determine the amount of the damage. Once the adjuster determines the full amount, the company pays the policyholder less their deductible.

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.

Actual Cash Value

The actual cash value is the fair market value of the property in question at the time of loss. Based on this theory, you may face a disadvantage following a fire when reimbursed. Items like clothing and furniture typically don't have a very high value when used (unless they are vintage or antique). If you get only the fair market value of your belongings, you may only be able to replace some lost items.

Replacement Value

Reimbursement means you'll get 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 critical to understand how your fire insurance policy would reimburse you for your loss.

Exclusions From Fire Insurance Coverage

Homeowners insurance coverage protects against fire damage in most instances. One of the most common fire insurance exclusions is arson. If a policyholder intentionally sets a fire, the insurance company will not cover the damages. But, if you experience an electrical fire due to a powerline falling on your home, that will likely be covered.

Further, a standard policy does not cover items such as:

• Artwork
• Money
• Important documents
• Precious stones

It's wise to detail this information when buying coverage.

Homeowners living in areas at high risk for wildfires may find wildfires excluded or limited in traditional homeowners policies. Read your policy carefully to determine if you need extra coverage to cover this risk.

When Is Fire Insurance Required?

Having fire insurance to cover losses is not required by law. But, some circumstances need coverage. For example, if you have a mortgage on your home, your lender may require you to carry homeowners insurance. It must include fire as a covered peril. Renters insurance typically covers fire damage caused by accidents, electrical issues, and faulty appliances. A landlord may require renters insurance as part of a lease agreement.

If you finance or lease your car, the lender may require coverage for fire damage. You may have to carry comprehensive coverage on your auto insurance policy. This coverage will apply to fire losses to the vehicle.

Commercial Fire Insurance

Fire can devastate a business as quickly as it can a home. For this reason, companies need to carry commercial fire insurance coverage. With fire insurance coverage, a small business may have the resources to rebuild after a catastrophic event. An essential element of commercial business insurance is an accurate valuation of the business. Under-valuing a company could lead to an owner being underpaid following a fire.

Commercial fire insurance also offers coverage unique to different types of businesses. This includes specialized coverage for items such as:

• Cash
• Valuable documents
• Jewelry
• Aircraft

Another valuable type of insurance to consider is business income insurance. This policy reimburses owners for lost income resulting from a business closure.

Speak With a Lawyer About Fire Insurance

It's wise to buy an appropriate level of insurance coverage. You'll want adequate coverage if you make an insurance claim. A licensed insurance agent can give an insurance quote that considers your situation. They can explain policies and any exclusions you should know about.

If you need help with legal issues with fire insurance, seek the advice of a lawyer. FindLaw can help you find a great insurance law attorney in your area.