What Is Fire Insurance?

Definition and Example of Fire Insurance

Fire insurance covers the costs of damage to your property due to a fire. It also includes your personal belongings and expenses for lodging and meals above and beyond your normal living expenses, up to your policy limits. It's subject to the same deductible and coverage limits as the rest of your policy.

Any detached structures on your land, such as sheds, fences, or detached garages, are often covered as well. Some policies will also help pay for landscaping costs, such as damage to trees and shrubs.

The National Fire Protection Association reports that U.S. fire departments responded to about 346,800 house fires from 2015 to 2019. Fire coverage is included in most homeowner's insurance policies, but there are certain exclusions from coverage. It's key to know what yours includes and what your options are for protecting your home.

How Fire Insurance Works

You must file a claim with your insurer to get damages covered in the event of a fire on your property. Be sure to take pictures of all damage in order to document your claim. The company will send a claims adjuster to your house to assess the damage. Check their identity when they arrive, because scams do happen. Walk with them through your property to make sure they see everything. If you have photos from before the damage, it can be helpful to provide those.

Review the estimate when you receive it from your insurer. Compare it to your policy terms to make sure it matches what you paid for.

Your homeowner's policy will pay for damage to your home up to the policy limits for fire damage. But most policies exclude damage caused by war, nuclear radiation, and other associated perils.

The damage won't be covered if a homeowner sets their home on fire on purpose. Damage to a vacant home is also not covered, at least not if the home was vacant for more than 30 days in a row at the time of the fire. You can buy a “vacant homeowners insurance policy” if you want to cover a home that isn't being lived in.

Your policy may exclude other events as well, or charge higher premiums for them, depending on where you live. You may be subject to certain limits if you live in an area that's at high risk for wildfires.

You can purchase extra fire insurance above and beyond your homeowner's policy to cover damages that your standard policy does not.

Replacement Cost vs. Actual Cash Value

Find out if your policy pays actual cash value (ACV) or replacement cost for property that's damaged by fire. ACV coverage may not be enough to replace items you lost at today’s market value. But you might be able to add a rider to your policy to cover the replacement cost. This will allow you to replace your items with new ones of the same quality, but your premium will be higher.

Actual cash value vs. replacement cost is also a big factor when it comes to rebuilding your home. The cost to rebuild may be much greater than the home’s actual cash value. Be sure you know exactly what your policy covers.

Types of Fire Insurance

Business owners with tangible property may not need fire insurance. Fire damage to a business is often covered in the basic business owner’s policy. This includes damage to your building, attached and detached structures, office equipment, and inventory.

Most owner’s policies will also pay for extra operating expenses if you must move your business to a temporary location. Keep a current inventory of business equipment and other valuable items. You should also keep vital documents off-site so they're not destroyed in a fire.

Do I Need Fire Insurance?

Your home is one of your most important investments. Homeowner's insurance that includes fire insurance can protect you from financial disaster.

Having fire insurance can become even more important depending on where you live. Areas such as California, for example, have seen an uptick in wildfires in recent years. The area burned by California wildfires each year has been increasing since 1950, and eight of the state's 20 largest wildfires have occurred since 2017.

If you have a mortgage, your lender will make you buy homeowners insurance if you have a mortgage. But it's good to have it in place even if you own your home free and clear. Insurance will protect your finances and assets in the case of disaster even if you have full equity in your home.

Homeowners insurance is a must unless you can cover the costs of rebuilding your home and replacing your possessions out of pocket. Make sure yours includes fire insurance so you will be protected in any type of emergency.