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Curious About What Fire Insurance Covers? Here’s a Basic Primer

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U.S. fire departments put out an estimated 490,500 structure fires in 2020. Of these, about 379,500 were residential, and 86,000 occurred in apartments. Another 270,500 fires took place in one- and two-family homes, according to a report on Statista.

If you’re in a fire zone or you’ve been in a fire in the past, you may wonder what insurance coverage costs, what it covers, if it comes with a standard homeowners insurance policy, and how to make a claim. Get your questions answered so that if things heat up, you’re covered.

What does fire insurance cover?

Most homeowner insurance policies should include fire coverage. Depending on the policy, it may cover rebuilding or repairing your home, and additional living expenses if you need to relocate while repairs are made.

Even if a secondary event not covered in your standard policy caused the fire — such as an earthquake knocking down a power line — your home should still be covered. Most policies also encompass structures on your property, like a fence, hot tub or storage shed. And most homeowner’s policies cover things like your personal belongings, furniture, appliances, or electronics that are damaged by fire. This may include smoke damage.

Since you typically cannot get insurance for more than a home’s actual value, it’s best to revisit your policy limits every year to ensure your policy is robust enough to cover the current value of your home. That’s because many people renovate or remodel parts of their homes, which may add value to the property, in addition to rising home prices and construction costs.

It’s also important to understand the differences between actual cost value and replacement cost to know what to expect if you have to file a claim.

Actual cost value: Actual cash value (ACV) reimburses you for what your current items (including your house) are worth after depreciation due to natural wear-and-tear.

Replacement cost: Replacement cost value (RCV) is the cost to replace damaged property without a deduction for depreciation.

For example, let’s say your stainless steel range, which cost $1,000 five years ago, was damaged in a fire. The current cost to replace the range would now be about $750 due to five years of depreciation, so that’s about what you could expect to see with an actual cost value policy. But with replacement cost value, you’ll get the value of a brand new range, which should be a similar model and close to what you paid originally.

Is fire insurance part of homeowners insurance?

Normally, yes. Damage from a fire is part of most homeowner’s insurance policies because fire is a common mishap.

Fire is often a part of hazard insurance. So, as long as your homeowner’s policy states that you will be reimbursed for property damage and the home’s contents, most fire damage is fully covered.

But there are exceptions!

In California, an average of 3,600 fires and over 293,000 acres burned over the past five years. Unfortunately, the damage was not entirely covered by a standard homeowner’s insurance policy because three main factors contributed to the risk of a claim from a wildfire:

  • Access: limited access to a fire station, fire hydrant, or dead-end streets can block the reach for firefighting equipment
  • Fuel: the presence of dense trees, grass, and brush
  • Slope: the speed and intensity of a wildfire increase on steeper slopes

It’s also worth mentioning that damage caused by fires covered under your standard insurance policy may be capped at a rate that is less than the cost of your accrued losses (minus your deductible), calling for the need for separate fire insurance. In other words, your policy might be capped at an amount below what you’d need to replace or rebuild your home, making a supplemental policy a good idea.

Do I need separate fire insurance coverage?

That depends. If you live in an area of increased fire risk, then buying separate fire insurance coverage may be a logical choice. Of course, that really depends on the structure you own and where you live.

Let’s say you’re in an area with large tracts of state or national open space or forest. Maybe your home is a historic property, older, highly customized, or there are other variables that might make replacing it harder or more expensive. In that case, adding a protective layer to your current homeowner’s insurance can be a godsend if your house goes up in flames.

Anthony Martin, founder and CEO of Choice Mutual Insurance Agency, says, “If you live in a high-risk fire area, you can get FAIR insurance, but this type of property insurance is limited to certain states.” The Fair Access to Insurance Requirements (FAIR) Plan is a state-run shared market program that provides insurance for homeowners who may have trouble insuring their property because insurance companies consider them high-risk.

Martin adds that you can save money by being covered more comprehensively if you use a hybrid plan that combines a standard insurance policy with a FAIR plan. “This means you can have a FAIR plan that only covers fire damages, while your regular policy covers things like water damage.”

Quick tip: Compare quotes from several standard home insurance companies before you commit to a FAIR plan. Insurers gauge risk differently, and if one insurance company won’t insure your property, another company might.

Are there parameters around the causes of the fire?

Your insurance company’s liability is limited by the policy value and not by your losses or damages. So understanding the parameters around the cause of the fire and whether a policy will cover those variables is important.

Accidents, cooking mishaps, grease, and electrical fires, natural gas or propane issues, unattended candles, and wildfires are all typically covered. However, if you live in a high-risk area for wildfires — you’re not always covered.

Other instances that may (or may not) be covered include:

  • Valuable items or collectibles
  • Arson, or setting a fire deliberately, is not covered and is considered insurance fraud
  • Fires caused by war or nuclear radiation
  • If the property has been vacant for more than 30 days
  • Electrical wiring that doesn’t conform to local building codes
  • If the fire is caused by unlawful activity, like illegal drug manufacturing

How do I make a fire insurance claim?

Hopefully, you never have to file an insurance claim due to a fire. But if you do, take these steps.

  1. Call your insurance agent.
  2. Know exactly what your current homeowner’s policy covers.
  3. Document your belongings (a video can work) so you have proof of your losses. Update it regularly (annually is wise; biannually is even better).
  4. After the fire, document the damage and file a claim with your insurance provider.
  5. File your claim by providing some basic personal information, including the date of the fire, your address, a brief description of what happened, and a fire department report.
  6. A claims adjuster will come to your home to estimate the damage.
  7. The claims adjuster will process your settlement.

Does fire insurance cover renters?

In most cases, yes. Your landlord must insure the building itself, so the structure is covered if something happens, like a fire. However, you must purchase renter’s insurance to cover your personal belongings inside the rental unit.

A typical renters insurance policy covers the renter or tenant, personal goods, and potential liabilities that may occur on the property due to a covered peril. Keep in mind that even if your personal belongings are not in your apartment, they are still covered (for example, if a fire starts in your car, the belongings in your car are included in your rental insurance policy). Most policies will also pay for temporary food and housing if a fire forces you from your apartment. Renter’s insurance covers injuries to another person if a fire occurs while they are visiting, too.

Whether you negligently started a fire or someone else did, it is a covered peril, and you are protected unless it was started intentionally. Remember, your renter’s policy only covers losses up to your coverage limits, so you’ll want to make sure that limit is high enough to replace your belongings.

What does fire insurance cost?

It depends. Martin mentions that fire insurance policy costs depend on the insurance program or company and that many variables go into determining the final price of separate fire insurance.

“You may find one company that offers a separate fire insurance policy for $1,000 per year, while another company could be up to $4,000 per year.” That’s why it pays to shop around and get multiple quotes.

If you’re not sure whether fire insurance will cover an item or property you own, talking to an insurance agent (your real estate agent probably knows several!) is a good place to start. When it comes to insurance, especially for something as large as your home, you’ll want to make sure the advice you’re getting is tailored to you and your household.

Header Image Source: (Andrei Slobtsov / Unsplash)