What You Need to Know About Fire Insurance Policies

What You Need to Know About Fire Insurance Policies

California wildfires have taken a huge toll on human life and property this year. Hundreds of people were injured or killed in the Napa wine region. Thousands of homes and acres of land were destroyed. As the victims of these fires have sought reimbursement for damages or even the replacement of their homes, some of them faced a startling realization when their insurance companies denied coverage for certain losses. This article aims to provide a brief summary of what you need to know about fire insurance policies.

Coverage denial is a recurring issue because the insurance companies do not always clearly explain what is covered. Sometimes this lack of information can be remedied by the insured carefully studying and researching the insurance policy. Most of the time, however, the policy language is convoluted and can be misleading.

One of the first things you need to know is whether your insurance company pays losses based on the actual cash value or on the replacement cost of the damaged property. Actual cash value is typically the fair market value of the property or its replacement cost less its accumulated depreciation. Conversely, the replacement cost is the total cost for the replacement of the property with similar property. This means that you will get a better coverage based on replacement cost than actual cash value.

In addition, many insurance policies will put dollar limitations on your coverage. If the limit is $100,000, then the insurance company is not going to compensate you beyond that amount of money. However, you can sign up for additional coverage to cover the replacement cost of special property such as furs, jewelry, and pieces of art. This is probably necessary, when applicable, because most insurance policies provide a dollar limitation specifically for the replacement of personal property and luxurious personal items.

One way to help ensure coverage is to take videos of your home and all of your belongings in case a dispute arises with an insurer. Another smart thing to do is to try to keep all receipts in a fire-safe deposit box and/or backed up electronically.

Some cities may also require a code upgrade for the building if it has been severely damaged in a fire. Generally, insurance companies do not provide this coverage by default. The insured should therefore consider signing up for additional coverage that will reimburse such code upgrades.

Finally, be aware that insurance companies often change their insurance policies. Review your policy annually and make sure it includes all of your property at all of your locations.

Sarah Neumann
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