Do I Need Separate Fire Insurance Coverage for My Home?

Fire insurance is a type of home insurance that covers losses caused by a fire to both your house and your property within it. Most homeowners and renters will be adequately protected for fire damage by their standard home insurance policies, as coverage is included in standard homeowners and renters insurance policies. People who live in high-risk fire areas, on the other hand, may want or need to purchase separate fire insurance coverage to protect their property—home insurance companies may exclude homes in high-risk fire areas from standard fire protection.

How Does Fire and Smoke Damage Get Covered Under Homeowners Insurance?

Most standard homeowners insurance policies include fire insurance coverage. It is one of the named perils covered by HO-2, or "named perils" coverage, and it is also covered by HO-3, or "broad form" coverage. Furthermore, fire damage will be covered even if the underlying cause of the fire is one of the perils expressly excluded from your policy. For example, if an earthquake, which is not covered by HO-2 or HO-3 policies, destroys an electrical line and causes your home to catch fire, you can still file a claim with your homeowners insurance.

Most of the time, you aren't just limited to burned-out items. Much of the damage caused by a fire to homes and properties is caused by smoke, which can mar walls, furniture, and other objects—and this is usually covered by standard home insurance as well.

Fires, like any other peril covered by your home insurance policy, are covered up to the total limit of your policy, minus your deductible. Assume the structure of your home is worth $200,000 and your belongings inside are worth an additional $100,000. If you had $300,000 in homeowners insurance with a $1,000 deductible, your insurance company would pay you $299,000 if your house burned down and all of your belongings were destroyed. If you only had $200,000 in coverage, you'd only be paid up to that amount, but if you had $400,000 in coverage, you'd still be paid $299,000.

How Coverage Limits and Deductibles Affect Fire Insurance Payouts

Fire insurance will typically cover damage to your home and property even if you accidentally started the fire. In fact, the majority of home fires are started by humans, whether by an unattended candle, an electrical surge, or a cooking mishap, and the damage caused by any of these is covered. A fire caused intentionally or by gross negligence, on the other hand, is not covered.

Here's a breakdown of how standard homeowners insurance policies may cover financial losses caused by a fire:

• Dwelling Coverage: This covers the cost of repairs to the singed or burned-away portions of the house, regardless of whether they are performed by contractors or plumbers. If your house is completely destroyed by fire, they will pay you a lump sum for it, up to your limits. This also includes smoke damage to the house. Payment is typically made for the difference between the actual cash value and the replacement cost.
• Personal Property: This covers the cost of replacing your clothing, furniture, and other belongings in the event of a fire. Individual types of valuables may be treated differently, as high-value items are typically subject to per-item limits. For example, valuable jewellery should be itemized, with individual coverage amounts assigned to each piece (known as a schedule or endorsements).
• Liability Protection: This protects you from lawsuits and related damages if an isolated fire spreads from your home to the property of a neighbor.
• "Loss of Use" or "Additional Living Expenses" (optional): Your insurer will reimburse you for temporary lodging and food costs incurred during your evacuation, typically ranging from 10% to 30% of the dwelling limit. What is considered an allowable expense varies depending on the insurance company.

Can I Buy Standalone Fire Insurance?

True. In addition to the coverage provided by standard homeowners or renters policies, some insurers offer policies that cover fire damage exclusively or primarily. It is commonly referred to as "dwelling fire" coverage and includes protection against fire, smoke, explosions, and, in some cases, wind. Dwelling fire coverage typically costs less than a HO-3 or HO-2 policy because it does not cover as many perils as standard homeowners insurance. To mitigate the high cost of home insurance, you might consider purchasing standalone fire insurance instead of traditional home insurance to insure an older or claim-prone property. You could also add it to a secondary residence or vacation home, which can be difficult to insure at times.

You should also think about adding a dwelling fire policy to supplement your existing homeowners insurance. This could be because you live in an area prone to forest fires or because you have previously experienced fire loss and want extra peace of mind.

Fire Insurance For Homes That Don't Qualify for Regular Coverage

Due to an unusually high risk of fire, some homeowners may find that their home insurance company refuses to provide coverage or refuses to renew their policy. This could be because you live too far away from a fire station, your house is too close to brush, or you live near a canyon, which can help funnel winds and cause large wildfires. These conditions are, unsurprisingly, common in California, which has experienced a record number of wildfires in recent years.

If you are unable to obtain standard home insurance due to the risk of fire, you may still be able to purchase a FAIR insurance policy. FAIR policies are government-backed insurance policies that are available in most states for homes that do not qualify for insurance on the open market, whether due to a high risk of fire or another risk, such as flooding. Be aware, however, that FAIR insurance plans are generally not less expensive than privately sold insurance plans and often provide less coverage than standard plans. For example, in California, FAIR coverage only covers fire and smoke damage, but not water damage or theft. As a result, obtaining fire insurance from a different source is likely to be a better option.

A hybrid plan that combines a FAIR plan and a regular insurance policy is one option for homeowners who live in high-risk areas. Your home is only covered by FAIR in these plans for fire damage. Furthermore, you must purchase a separate policy for the other types of coverage included in standard homeowners insurance, such as theft damage and liability protection. These policies are also known as difference-in-conditions (DIC) insurance.

Before committing to a FAIR plan, get quotes from several standard home insurance companies. Every insurer assesses risk differently, and just because one company denies you, it does not mean another will. Inquire with your neighbors about the insurers they use: Because their homes are likely to have similar risk profiles to yours, a company willing to insure theirs is likely to insure yours as well. Work with an insurance agent if you want to find an insurance company in your area that is likely to offer you coverage.