# Fire Insurance Basics: Coverage, Benefits, and How It Works

![Fire Insurance: A form of property insurance that covers damage and losses caused by fire.](https://www.investopedia.com/thmb/wMrce9oHyljItATFbtjZM_l29Q4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/fire-insurance.asp-final-6b7fa32e8bcd4285b946e9c0a2721b67.png)

*— Investopedia / Paige McLaughlin*

## What Is Fire Insurance?

Fire insurance is a specialized form of [property insurance](https://www.investopedia.com/articles/insurance/09/property-insurance.asp) that safeguards against damages and losses due to fire incidents. While standard homeowners insurance may include some fire protection, additional fire insurance ensures comprehensive coverage for replacement, repair, or reconstruction of property. This type of insurance typically excludes certain risks such as fire damage from war or deliberate fires, encouraging homeowners to evaluate their coverage needs annually for adequate protection.

### Key Takeaways

*   Fire insurance is a type of property insurance that specifically covers losses and damages caused by fire.
*   Homeowners insurance often includes some fire coverage, but additional fire insurance may be necessary for more extensive protection.
*   Fire insurance policies generally do not cover deliberate fires or damage from excluded perils like war and nuclear risks.
*   Policyholders can be reimbursed on a replacement-cost or actual cash value basis, depending on their fire insurance policy terms.
*   Regularly reviewing and updating fire insurance coverage is important to ensure it aligns with the current value of the home and its contents.

## Understanding the Functionality of Fire Insurance

A standard homeowners insurance policy usually includes fire insurance. [Homeowners insurance](https://www.investopedia.com/terms/h/homeowners-insurance.asp) provides policyholders with coverage against loss and damage to their homes and possessions, also referred to as insured property. Insured property includes the interior and exterior of the home and any [assets](https://www.investopedia.com/terms/a/asset.asp) kept on the property.

Policies may cover injuries sustained on the property. [Mortgage](https://www.investopedia.com/terms/m/mortgage.asp) lenders often require homeowners insurance before approving loans. Even if not required by your lender, homeowners insurance offers significant protection.

You can also purchase fire insurance as a stand-alone policy. It covers a policyholder against fire loss or damage from a number of sources. This includes [fires](https://www.investopedia.com/how-fire-season-affects-the-economy-5194059) caused by electricity, such as faulty wiring and gas explosions, as well as those caused by lightning and natural disasters. It may also cover burst pipes and overflowing water tanks.

## Practical Examples of Fire Insurance Applications

Most fire insurance policies provide coverage regardless of whether the fire originates inside or outside the home. The limit of coverage depends on the cause of the fire. The policy reimburses on either a [replacement-cost](https://www.investopedia.com/terms/r/replacementcost.asp) or [actual cash value (ACV)](https://www.investopedia.com/terms/a/actual-cash-value.asp) basis for damages.

If the home is a total loss, insurance may reimburse its current [market value](https://www.investopedia.com/terms/m/marketvalue.asp).  Insurance usually compensates for lost possessions at market value, with [payouts](https://www.investopedia.com/terms/p/payout.asp) capped by the home's value.

If a home is insured for $350,000, contents are typically covered for 50% to 70%, or $175,000 to $245,000. Many policies cap reimbursements for luxury items like paintings, jewelry, gold, and [fur coats](https://www.investopedia.com/articles/personal-finance/092415/how-get-most-money-your-fur-coat.asp).

## Important Considerations for Fire Insurance Policies

Policyholders should annually check their home's value to decide if they need more coverage. Remember, you can't insure for more than your home's actual value. Insurance companies may offer stand-alone policies for rare, expensive, and irreplaceable items otherwise not covered in standard fire insurance.

Many standard [homeowners insurance policies](https://www.investopedia.com/financial-edge/1211/what-is-and-isnt-covered-by-homeowners-insurance.aspx) include coverage for fire, including providing for costs related to repairing your home and even additional expenses such as relocation.

Sometimes, more extensive coverage is necessary. If an insurance policy excludes coverage for fire damage, a homeowner may need to purchase separate fire insurance—especially if the property contains valuable items that cannot be covered with standard coverage. The insurance company’s [liability](https://www.investopedia.com/terms/l/liability.asp) is limited by the policy value and not by the extent of damage or loss sustained by the property owner.

> **Important**
>
> Fire insurance can cover the extra costs to replace or repair property beyond homeowners insurance limits.

Fire insurance covers payment for property loss of use due to a fire. They also often provide additional living expenses if the fire caused uninhabitable conditions. Finally, they provide for damage to [personal property](https://www.investopedia.com/terms/p/personalproperty.asp) and nearby structures. Homeowners should document the property and its contents to simplify the assessment of items damaged or lost in the event of a fire. 

A fire insurance policy includes additional coverage against smoke or water damage due to a fire and is usually effective for one year. Fire insurance policies on the verge of expiration are usually renewable by the homeowner under the same terms as the original policy.

## Is Fire Insurance Different From Homeowners Insurance?

Fire insurance provides coverage for costs related to a fire, whereas homeowners insurance protects against many other types of risks. A homeowners insurance policy typically includes coverage for damage caused by a fire, but a stand-alone fire insurance policy may provide more extensive coverage.

## What Is Not Covered in Fire Insurance?

A fire insurance policy will not cover losses related to fires set deliberately. Fire insurance also only covers losses related to a fire, so if your property suffers loss or damage from another cause, it would not be covered.

## What Type of Property Is Covered by Fire Insurance?

Typically, any fire damage to your home or its contents will be covered by fire insurance. This includes property covered by candle fires, grease fires, electrical fires, and others.

## The Bottom Line

Standard homeowners insurance typically includes fire coverage, providing compensation for damage to your home and personal property. However, it may be capped at a rate lower than the full extent of your potential losses. Consider a stand-alone fire insurance policy for more extensive protection, especially if your property includes valuable or unique items. Regularly verify your home's value to ensure your insurance covers potential reconstruction or repair costs. Consulting with a financial advisor can help tailor your fire insurance needs.  

> **Article Sources**
>
> 1.  Cornell Law School Legal Information Institute. "[Fire Insurance](https://www.law.cornell.edu/wex/fire_insurance)."
>     
> 2.  New York State. "[Choosing a Policy](https://www.dfs.ny.gov/consumers/help_for_homeowners/insurance/choosing_a_policy)."
>     
> 3.  Insurance Information Institute. "[What Is Covered by Standard Homeowners Insurance?](https://www.iii.org/article/what-covered-standard-homeowners-policy)"
>     
> 4.  Geico. “[How to Insure Your Valuables and Collectibles](https://www.geico.com/living/home/home-protection/appraising-your-valuables/).”