Your Insurance Cheat Sheet: Fire Insurance

If you own or rent a house or an apartment, you need to know about fire insurance.

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It’s a daunting title, I know. But if you plan on owning or renting property, acquiring fire insurance is part of the package.

The name “fire insurance” is also misleading. Insurance that is generally billed as fire insurance is, well, not just for fires. Package policies – including homeowners and renters policies – come with sections for liability and personal property. If this all sounds like gibberish to you, don’t fear – your friendly former insurance agent is here to break down a few policy types, potential losses and coverages.

Types of Losses
As stated previously, package policies are not just for fire-related losses. There is coverage available for losses related to theft, weather-related disasters and personal liability – similar to the liability coverage provided in auto insurance policies.

Personal Property Coverage
If you have your personal property (your clothes, furniture, childhood teddy bear, etc.) covered up to a total of $20,000 and your contents (aka: all the stuff you have – and forgot you have) sustain damages totaling $15,000, you will be paid $15,000 in compensation by your insurance company, less your deductible (which is usually $500 or $1,000). However, if your policy limit for personal property is $10,000, you’d be correct in thinking that you would only be reimbursed up to $10,000 for a $15,000 loss.

More valuable items – such as jewelry – often have a separate coverage section. If your policy covers jewelry up to $1,000 worth of damages and a ring valued at $500 is stolen from you, you will be reimbursed the full $500.

Liability Coverage
Many package policies do come with liability coverage. A visitor could still fall and experience injuries that come as a result of, say, water that was spilled on the floor. I know you’re probably thinking “my friends would never sue me for slipping and falling,” but honestly, you never know for sure until you’re in the situation. In fact, I have seen it happen with past clients.

You need to have liability coverage in place, because anything can happen. Limits of liability usually run anywhere between $100,000 and $1 million – meaning that you’re covered if you’re sued for up to whatever amount you choose as your policy limit.

Renters Insurance
As a tenant, you’re not responsible for the four walls and the floor of your apartment…but your personal property is your property, and if it catches fire, your landlord isn’t going to replace it. You are.

Renters insurance (sometimes called tenant’s insurance) will also come equipped with liability coverage. To return to the wet floor example, you’re still responsible…even as a tenant.

Homeowners Insurance
A homeowners policy will come with many of the same bells and whistles of a renters policy (personal property and liability coverage). However, there’s one distinct difference: you own the physical building. Which means – you guessed it – you need coverage to protect the house itself.

The base coverage on a package homeowners policy is the dwelling coverage (yes, it’s actually called dwelling because we’ve time hopped back to the 1950s) – meaning, the part of the policy that will cover loss to the four walls and the floor. Your insurance agent will speak to you about the types of materials that make up your house and in turn, will give you an estimated value for just the dwelling coverage amount. That number becomes your policy limit in the event that something should happen to your roof, your walls, your carpet…you get the picture.

With regard to personal property and liability coverages as part of your homeowners policy, the personal property amount is often determined as a percentage of the dwelling amount. For example, if your dwelling amount comes to $100,000 and your company calculates the personal property amount as 10% of the dwelling coverage amount, you end up with a $10,000 policy limit for personal property. Liability is up to you – but your company will usually have a minimum required amount.

Facts and Helpful Hints

  • Homeowners and renters policies are not the only types of package fire insurance policies. Speak to your insurance agent about all of your needs and determine the need for additional coverage.
  • If you’re looking to purchase a home and are taking out a mortgage, be sure to familiarize yourself with your bank’s requirements for homeowners insurance. Sometimes, banks will insist on a certain policy limit, especially for dwelling coverage – even if it is higher than the amount provided to you by your agent.
  • With renters insurance, take time to speak to your landlord or complex manager – they will often require you to have renters insurance purchased prior to entering into a lease contract.
  • Keep in mind with weather-related losses: flood-related loss is never covered. If you’re looking for coverage in the event of a flood, you would need to purchase flood insurance through the National Flood Insurance Program.
  • Many companies will offer a multiple-line discount if you purchase both auto and homeowners or renters insurance from that company.

Don’t hesitate to educate yourself further when purchasing insurance as there are even more available coverage options within policies that I didn’t name here – but remember, it’s not nearly as ominous as it appears.

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