Do I Need Separate Fire Insurance Coverage for My Home?

Do I Need Separate Fire Insurance Coverage for My Home?

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Fire insurance covers losses to the house itself and the property within it from damage due to fire. Most homeowners and renters have sufficient protection against fire damage through standard home or renters insurance, as fire coverage is included in these policies. But people who live in areas at high risk of fire may want or need to purchase separate fire insurance coverage to protect their property. Home insurance companies sometimes exclude homes at high risk of fire from standard fire protection.

How does homeowners insurance cover fire and smoke damage?

Fire insurance coverage is included in most standard homeowners insurance policies. It's one of the named perils covered in HO-2, or "named perils" coverage, and is also included in HO-3, or "broad form" coverage. Fire damage is covered even if the underlying cause of the fire is excluded from your policy. For example, if an earthquake, which is not covered under HO-2 or HO-3 policies, knocks down an electrical line and sets your home on fire, you would still be able to make a claim.

Most of the time, you're not just limited to things that are burned up. Much of the damage fire causes to homes and properties is due to smoke, which can mar walls, furniture and other objects. This is usually covered by standard home insurance, too.

Like any other perils covered by your home insurance policy, fires are covered up to your coverage limits, minus your deductible.

For example, suppose your home's structure is worth $200,000 and your belongings are worth an additional $100,000. If you had $300,000 worth of homeowners insurance with a $1,000 deductible, you would receive $299,000 from your insurance company if your house burned down and all the property inside was destroyed. If you had only $200,000 worth of coverage, you'd only receive payment up to that limit, but if you had $400,000 of coverage, you would still be paid $299,000.

How coverage limits and deductibles affect fire insurance payouts

Coverage limit
Home and property value (combined)
Deductible
Amount paid by insurer
$300,000$300,000$1,000$299,000
$400,000$300,000$1,000$299,000
$200,000$300,000$1,000$199,000

Fire insurance typically covers damage to your home and property even if you accidentally cause a fire. In fact, most home fires are caused by people, whether due to an unwatched candle, an electrical surge or a cooking mishap. Damage caused by these events are all covered. What's not covered, however, is a fire caused intentionally or due to gross negligence.

Here's a breakdown of how standard homeowners insurance coverages may take care of financial losses you experience as a result of a fire:

  • Dwelling coverage: This covers the cost of repairs to the singed or burned-away portions of the house. If your house is completely burned to the ground, they’ll pay you a lump sum for the house, up to your limits. This also covers smoke damage to the house itself. Payment is typically either for the actual cash value or replacement cost.
  • Personal property: This pays to replace your clothing, furniture and other belongings after a fire. Valuables may be treated differently, as expensive items typically have limits set per-item. For example, valuable jewelry should be listed with individual coverage amounts for each piece (known as a schedule or endorsement).
  • Liability protection: This protects against lawsuits and related damages for a fire that spreads from your house to a neighbor’s property.
  • Loss of use or additional living expenses: Your insurer will reimburse you for temporary lodging and food costs during your evacuation, usually for anywhere from 10% to 30% of the dwelling limit. What's considered an allowable expense differs by insurance company.

Can I buy standalone fire insurance?

Yes. In addition to coverage provided under standard homeowners or renters policies, some insurers provide policies that primarily or exclusively cover damage related to fire. It's usually called "dwelling fire" coverage, and it includes protection against fire, smoke, explosions and sometimes wind. Since dwelling fire coverage does not cover as many perils as standard homeowners insurance, it usually costs less than an HO-3 or HO-2 policy.

You might consider purchasing standalone fire insurance instead of traditional home insurance to insure a property that is older or that has a history of claims as a way to mitigate the high cost of insurance. Or you might add it to a secondary residence or vacation home, which can sometimes be difficult to insure.

Additionally, you might consider adding a dwelling fire policy to supplement your existing homeowners coverage. This could be because you live in an area susceptible to forest fires, or you may have simply experienced fire loss in the past and want extra peace of mind.

Fire insurance for homes that don't qualify for regular coverage

Some homeowners may find that a home insurance company may not offer you insurance coverage or decline to renew your policy due to an exceptionally high risk of fire. This might be because you are too far from a fire department, your home is too close to brush or you live near a canyon, which can funnel winds and create large wildfires. Unsurprisingly, these conditions are common in California, which has experienced a record number of wildfires in recent years.

If you're unable to get standard home insurance because of fire risk, you may still be able to buy a FAIR insurance policy. FAIR policies are government-backed insurance policies available in most states for homes that don't qualify for insurance on the open market, whether due to fire likelihood or another risk, like flooding.

Be aware, however, that FAIR insurance plans are generally no cheaper than privately sold insurance plans and often have less coverage than standard plans. For example, FAIR coverage in California only covers damage due to fire and smoke, but not other perils like water damage or theft. As such, if you can get fire insurance from another source, it's likely a better option.

One option for homeowners who live in high-risk areas is a hybrid plan that combines a FAIR plan and a standard insurance policy. In these plans, your home is covered by FAIR for fire damage only. In addition, you purchase a separate policy for the other types of coverage in standard homeowners insurance, such as damage from theft and liability protection. These plans are sometimes called difference-in-conditions (DIC) insurance.

Before you commit to a FAIR plan, make sure to check for quotes from several standard home insurance companies. Every insurer evaluates risk differently, and just because one company denies you doesn't mean another will.

Talk to your neighbors about which insurers they use, too. Their homes likely have similar risk profiles as yours, so a company willing to insure their home may be likely to insure yours as well. Or work with an insurance agent. They can help you find an insurance company in your area that is most likely to offer you coverage.

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