Understand What Your Fire Insurance Covers and How Your Insurer Pays Claims

A fire in your home can be a life-altering experience. Even if you are very fortunate to put the fire out quickly, you can face an expensive repair bill and need to replace belongings damaged by smoke. For many homeowners, a house fire can mean having to rebuild and start all over again.

In Canada, there are approximately 10,000 residential fires each year. Making sure that your home fire insurance coverage will appropriately cover the damages of a fire – no matter what size of fire it is – can give you peace of mind should a fire happen in your home.

What Does Home Fire Insurance Cover?

Insurance claims lawyers Virani Law break down the three elements of basic fire insurance: Structure, Contents, and Additional Living Expenses.

Structure: This area of your coverage pays for the repairs and materials required to restore your home to its condition before the fire. This includes interior and exterior damage, repairing fixtures such as plumbing and light fixtures, and damage to the walls, roof, flooring, etc.

Contents: This area covers personal belongings lost in the fire, including furniture, clothing, housewares, electronics, media, and other personal belongings. Part of your Contents coverage in a fire may go toward restoration costs, but you may want to be careful, as restoration costs may be taken out of the funds you have to use to replace lost belongings.

Additional Living Expenses: Home repairs can take months before you and your family can move in. During that time, you will have to pay expenses such as staying in a hotel or motel, the extra cost of takeout, storage costs for salvaged belongings, and the cost of securing an apartment. As part of your coverage, you can submit receipts to be reimbursed for many of these costs.

How Does Your Insurer Pay Fire Claims?

How your insurer pays out fire claims depends on the type of insurance policy you have. There are two ways that the insurer will calculate their settlement: Actual Cash Value and Replacement Cost.

Actual Cash Value: This is the value of the property destroyed by the fire minus depreciation due to age and use. For personal property such as furniture or electronics, it makes sense to think of it as the market value you could get if you sold the item today. The same principle applies to the structure of your home. Older materials such as roof shingles or plumbing will not be worth as much as newer structural elements.

Taking out Actual Cash Value coverage means you pay lower premiums, but it can also mean that when you file a claim, you are not guaranteed to receive funds that will be sufficient to replace everything.

Replacement Cost: Replacement Cost coverage results in a settlement that should cover the cost to replace lost belongings and structural materials, as well as the cost of labour to repair your home.

Often, the way Replacement Cost coverage works is that you will submit receipts to the insurance company for lost belongings, and they will reimburse you. When it comes to structural repairs, they may release funds at certain stages of work so that you can pay contractors, or they may release it themselves.

Even Replacement Cost coverage may be subject to a limit determined in your policy.