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What Does Fire Insurance Cover?

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Commercial insurance policies cover a number of catastrophic events. This includes fire and lightning. Most even cover wildfires. Still, many wonder what to expect from their insurance company. Is your coverage is sufficient if your building is severely damaged?

What types of fires are covered?

All policies cover kitchen fires, electrical fires, and fires resulting from lightning. A fire caused by an explosion, an oil spill, or a piece of burning debris falling from the sky is also be covered. If you managed to contain and put out the fire, but your property was damaged by the resulting toxic smoke, that damage is covered, too.

Wildfires are usually covered, though, in California and other high-risk areas, coverage can be limited or hard to find. Arson, when a fire is willfully caused, is also covered. This is provided the fire wasn’t started by an insured.

Certain events are excluded from every policy. War, terrorism, nuclear explosions, and earthquakes, are a few, though you can add an earthquake coverage rider. If your building is vacant for an extended period of time, usually 30 days, the fire coverage will be excluded. You can remedy this by purchasing a vacancy endorsement or a vacant property policy.

What to do before and during a fire.

Prevention is the first step in keeping you safe. Make sure you have working fire and carbon monoxide detectors, and at least one fire extinguisher. The latter will enable you to quickly put out a small fire or prevent it from spreading. Be sure your fire extinguishers are charged and have been inspected recently.

As soon as your fire alarm goes off, grab the fire extinguisher and try to put out the fire. However, if you are unable to extinguish the fire, you should leave immediately and call 911. Should your normal evacuation route be blocked, find another way out, and crawl to avoid inhaling smoke. If you can’t leave the room you are in, close all doors, place a wet towel under the door and cover any vents to prevent the smoke from seeping in, and wait for the first responders.

Do not waste any time gathering your valuables. Fire can spread quickly and cut off your escape route. Once you are out, stay out and keep a safe distance. Regroup and encourage everyone to remain calm. Once firefighters are on the scene, you can call your insurance company to file a claim.

What is covered with fire insurance?

Commercial insurance will pay for damages resulting from a covered fire up to the limit of coverage. The following are normally covered:

  • Buildings: This includes commercial buildings or offices that your business owns. If a building is rented or leased, and your rental or lease agreement requires fire insurance, coverage can be setup for your landlord’s building. In addition to the building itself, tenant improvements, outdoor signs, fences, and landscaping are also commonly included in the buildings coverage.
  • Contents: Covers building contents, which includes furniture, equipment, computers, tools, and inventory stored on or near the business premises. If your business leases equipment, many vendors require you to insure the leased equipment while it is in your possession.
  • Tenant Improvements: Renovations and upgrades you made to your building while renting the location.
  • Property of others: This is property that belongs to others that is in your care. The limit of liability for property of others is separate from your contents coverage and usually has a very low limit by default. This limit can be increased by paying additional premiums.

What should you do?

Check your policy to see whether you have actual cash value (ACV) or replacement cost coverage. Actual cash value factors in depreciation. The older something is, the greater the depreciation or loss of value. The cost to rebuild your building or replace your lost valuables may be a lot higher than the actual cash value.

Replacement cost is usually worth the additional cost, if available. It means your building and lost items will be replaced by new ones of equal value. Look at an enhanced replacement cost in case the cost to rebuild is much higher than anticipated. This can be due to ordinance laws or other constraints.

As you can see, a standard commercial insurance policy provides a lot of coverage for a major fire. However, your needs may be different or more extensive than the average. Call us at 888.427.5222 to assess your needs and answer any questions you may have about your coverage, replacement cost coverage, or endorsements.


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Resources

Investopedia – What is Fire Insurance?

AdvisorSmith – What Is A Commercial Fire Policy?

About the Author

  • Will Bauer joined the CNIS team in July of 2021. Born and raised in Nebraska, Bauer spent time volunteering with organizations around the country and internationally. With multiple years of experience in the Insurance and SaaS industries, Bauer brings a passion for creating useful content.

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