What is 'Fire Insurance'

Fire insurance covers damage or loss to a property because of fire. It is a specific form of insurance in addition to homeowner’s or property insurance, and it covers the cost of replacement and repair or reconstruction above what the property insurance policy covers. Fire insurance policies cover damage to the property, and may also cover damage to nearby structures, personal property and costs because of not having the capacity to live in or use the property if damages occur.

!--break--Homeowners should document the property and its contents, which makes it easier to determine the value of items damaged or lost due to a fire. A fire insurance policy may contain exclusions based on the cause of the fire, such as not covering a fire caused by war.

The policy typically includes additional coverage against smoke or water damage due to a fire. A fire insurance policy is usually set up for one year. The policyholder may renew the policy according to the terms of the policy.

Some standard homeowner’s insurance policies include fire coverage, but others may not. This coverage may need to be purchased separately, particularly if the property contains valuable items that are excluded from coverage. The insurance company’s liability is limited by the policy value and not by the extent of damage or loss sustained by the property owner.

Policy Coverage

Fire insurance covers a policyholder against fire loss or damage brought about by the ignition of fire, electricity, lightning or explosion of gas, natural disasters, and bursting and overflowing of a water tank or pipes.

Most policies cover a home regardless of whether the fire originates from within the home or from outside the home. Coverage limits are dependent on the cause of the fire. The policy reimburses the policyholder on a replacement-cost basis in the event the property is lost, or on an actual cash value basis for damages.

If the home is considered a total loss, the insurance company may reimburse the owner for the current market value. If most of the possessions were destroyed in the fire, typically the insurance company offers a market value compensation for each item. For example, if a policy insures a home for $350,000, the contents are usually covered for at least 50-70% of the policy value, or $175,000 to $245,000. Many policies limit how much insurance companies pay for items such as luxury paintings, diamond rings or fur coats.

Coverage Assessment

A policyholder should check his home's value every year to determine if there is a need to increase coverage. He can set coverage limits using factors such as the value of the home and its contents. However, a policy may offer lower coverage limits for certain items, in which case it helps to purchase additional coverage for luxury items such as jewelry, art and other assets.

BREAKING DOWN 'Fire Insurance'

RELATED TERMS
  1. Hazard Insurance

    Insurance that protects a property owner against damage caused ...
  2. Property Insurance

    A policy that provides financial reimbursement to the owner or ...
  3. Combined Physical Damage Coverage

    Combined physical damage coverage is an auto insurance policy ...
  4. Use and Occupancy Insurance – U&O

    A type of insurance that covers against the loss of use of machinery ...
  5. Distribution Clause

    An insurance policy provision which determines how the coverage ...
  6. Assessable Policy

    A type of insurance policy that may require the policyholder ...
Related Articles
  1. Insurance

    What Is and Isn't Covered by Homeowners Insurance

    Understanding what your insurance covers can be confusing. Learn what almost all insurance policies have in common so you're prepared if disaster strikes.
  2. Insurance

    Do You Need Casualty Insurance?

    Find out how different types of coverages can protect you and which policy is right for you.
  3. Insurance

    The Beginner's Guide To Homeowners' Insurance

    Discover everything new homeowners need to know before they sign on the dotted line.
  4. Insurance

    What Does Renter's Insurance Cover?

    Renter's insurance is supposed to cover a tenant's personal property as well as liability claims, but not all policies deliver.
  5. Insurance

    Renter's Insurance: A Comprehensive Guide

    Everything you need to know about renter's insurance.
  6. Insurance

    Does Your Homeowner’s Insurance Cover Airbnb?

    Renting out a room on Airbnb can be a good way to generate income, but you need to understand what is and isn’t covered by your homeowner’s insurance first.
  7. Managing Wealth

    6 Insurance Policies That Protect the Wealthy

    Here are six types of insurance that the wealthy use to protect their assets.
  8. Insurance

    Insurance, Excess Insurance and Reinsurance: What's the Difference? (ALL)

    Understanding the differences might help you avoid being overinsured or underinsured.
RELATED FAQS
  1. Does homeowners insurance cover fires?

    Understand if your homeowners insurance policy covers fire damage so you can protect what is likely to be your most valuable ... Read Answer >>
  2. What are some examples of industries that practice price discrimination?

    Understand the various types of insurance coverage offered in the insurance marketplace, and learn why each policy should ... Read Answer >>
  3. Can I get renters insurance without a lease?

    Find out whether you need to have a lease before you can get renters insurance. Learn about policy coverage and what information ... Read Answer >>
  4. Can your insurance company cancel your policy without notice?

    Learn about your rights as an insured when it comes to your insurance policy being canceled, including how to access your ... Read Answer >>
Hot Definitions
  1. Price Elasticity Of Demand

    A measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. Price ...
  2. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  3. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center