What is Fire Insurance?

Mary McMahon
Mary McMahon

Fire insurance is a form of property insurance which protects people from the costs incurred by fires. When a structure is covered by this type of insurance, the insurance policy will pay out in the event that the structure is damaged or destroyed by fire. Some standard property insurance policies include fire coverage in their coverage, while in other cases, it may need to be purchased separately.

A fire insurance agreement.
A fire insurance agreement.

Depending on the terms of the policy, fire insurance may pay out the actual value of the property after the fire, or it may pay out the replacement value. In a replacement value policy, the structure will be replaced in the event of a fire, whether it has depreciated or appreciated: in other words, if homeowners purchase a home and the value increases, as long as it is covered by a replacement value policy, the insurance company will replace it. An actual cash value policy covers the structure, less depreciation. Most accounts come with coverage limits which may need to be adjusted as property values rise and fall.

Fire insurance protects people from the costs incurred by a fire.
Fire insurance protects people from the costs incurred by a fire.

Depending on the terms of the policy, the contents of the home as well as the structure may be covered in the event of a fire. Some policies also provide a living allowance which allows the victims of a fire to rent temporary housing while their homes are repaired. These clauses in an insurance policy typically cause the policy to become more expensive, since they will represent additional costs to the insurance company in the event of a fire. However, they can be extremely useful if a fire occurs.

Depending on the policy, both the structure and the contents of the structure may be covered in the event of a fire.
Depending on the policy, both the structure and the contents of the structure may be covered in the event of a fire.

The cost of fire insurance varies widely. The use of fire alarms, sprinkler systems, and other safety measures can decrease the cost of the policy, and may even be required for some policies. Living in a region prone to wildfires will increase the cost of the insurance, as the risk of a payout is greatly increased. Because many people purchase a fire policy for their homes and businesses, insurance companies have a large risk pool, making the policy less expensive than specialized insurance like earthquake or flood insurance.

When purchasing fire insurance, people should be aware that some types of fires may not be covered. For example, a fire caused by an earthquake might be excluded from a fire insurance policy, as might a fire caused by an act of God. It is important to read the terms of the policy carefully, and to ask for clarification from the insurance representative if the terms are not clear. If a policy does not appear to meet the need, it should be renegotiated until it is satisfactory.

Some home insurance policies may already cover damage by fire.
Some home insurance policies may already cover damage by fire.
Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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Discussion Comments

anon276298

Fire is a more controllable thing than flooding. You can try to control it even when the range of fire is quite high, but when it floods, many times you have to just wait until the flood level comes down. Even military rescue operations could not do anything when the flooding is severe.

anon268688

In fire insurance, mitigation can apply to a higher degree, unlike flood insurance. Floods are not predictable and not controllable.

anon181342

What happens when your house burns down with fire replacement value insurance, but you'd like to build a house that is a little bigger than the one that got burned down. How is this handled?

What about personal property? Let's say you have it insured for $100K. Do you get one big check and start buying furniture or you buy household items first and give them receipts for reimbursements? We are not a wealthy family and most of the things we have we acquired when it was on sale.

Is there a time limit for purchasing new items? It took us years to collect everything at the price we could afford. How much time would we have to use that 100K? What happens when it's not totally used? Recently my brother had a bad car accident and there were a lot of problems with insurance and it seemed that his coverage was insufficient. A house is a much bigger investment and I'd rather not make a mistake here. I don't want to contact my insurance agent since he may be only interested in selling me more coverage whether I need it or not.

Last question: Very often when your house burns down, your neighbors' homes get some damage, as well. How much coverage do I need so that I'm protected in case the fire spreads? I don't want to be sued and lose my house in a fire and the rest in court.

subway11

Anon117219- I think I can awswer that for you.

Floods are much more common in certain parts of the country especially if you live in a flood zone.

Fire by contrast, is not something that occurs with the same level of frequency. The only exception might be if you consider parts of California where brush fires are a threat because of the wind and drier weather conditions.

If you compare your flood policy, to that of someone’s fire policy coverage that lived in Big Bear or San Bernardino Valley for example, you might find the fire insurance quote comparable.

anon117219

Why is flood insurance three times as much as our fire insurance since both could destroy your house?

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