Fire insurance provides coverage for the loss of your property caused by fire. Usually, a policy has four areas of coverage: the dwelling, other structures like a detached garage, gazebo, or a guest house, personal property, and the loss of use or additional living expenses in case if you have to move out and live somewhere else until your property is rebuilt or repaired. However, depending on the type of property and the needs of the insured, there is no standard one-size-fits-all policy. In fact, there are several different types of fire insurance policies that vary based on the area of coverage.
Here are the main types of fire insurance policies:
In a specific policy the insurance company agrees to pay a specific amount regardless of the value of the property. The indemnity is usually lower that the actual property value. Sometimes, but not always, the policy may include “the average clause,” which states that the insured is required to be partially responsible for the loss. In that case, the policy is called an average policy.
This type of fire policy covers all kinds of risks like fire, burglary, theft, riots, and other third party risks. That’s why it is often called “all-in-one policy.” If you are insuring your business, the policy may cover the loss of profits for as long as the business remains closed due to fire damage.
A valued policy is not based on the principle of indemnity. Instead, in this policy the indemnity is a fixed amount agreed upon at the time of signing the contract. The insurance company pays that amount regardless of the actual loss due to fire. The valued insurance policy is usually offered for such items like jewelry, furs, or paintings, which value is difficult to estimate once they are damaged or destroyed by fire.
As opposed to the valued policy, in a valuable policy the indemnity is determined depending on the actual loss of the property and at the time that loss occurred. It is usually calculated based on market value of the property.
A floating policy is considered in case of multiple properties that belong to the same policyholder. It is often purchased by businesses that own more than one warehouse or store where inventory changes frequently and their merchandise and/or raw materials are at different locations.
A replacement policy, also called reinstatement policy, binds the insurer to pay for replacing the damaged property. The insurance company reinstates the property instead of paying out cash.
Fire insurance policies vary depending on the area of coverage. However, not everything might be included in a general policy. There are some exclusions like for example medical bills, loss of human life or pets, damage to the landscape, etc. that may require an extended coverage to be purchased.