Do I Need to Buy Fire Insurance?

iStock_000006240607XSmallYou might have heard the term fire insurance and wondered if it’s something you need to purchase in addition to your regular home insurance. In fact, you have probably also heard the terms hazard insurance and casualty insurance. These all sound like serious matters and probably something you should consider. However, did you know that your existing home insurance policy actually covers all of these types of insurance? Unfortunately, the world of insurance has evolved over time and old terminology is commonly used in a way that serves only to confuse the average consumer.

Fire insurance is exactly what it sounds like: insurance that covers your damage caused by fire. However, it’s rather limited in scope when you consider that your home can suffer damage from many more causes than fire. The earliest policies that covered property damage were primarily for the risk or peril of fire and that’s how the name became common. Once policies started covering more perils than fire, it was a bit of a misnomer, but the name stuck and people continue to refer to broader property insurance as fire insurance. If someone uses the term, you should clarify if they do, in fact, mean only fire insurance or if they mean coverage for many more types of loss.

If you read through your home insurance policy (as you should), you will see that it details the causes of loss, or perils, that are covered. Early fire insurance policies only covered losses due to the peril of fire. Policies were then expanded to name some additional perils that would also be covered. More recently, policies were even further broadened to cover all losses except those from a few, specified perils. These newest policies became known as “all-risk” policies because they covered so many perils. This is quite a journey from the earliest fire insurance policies!

Hazard insurance is another name for the standard home insurance policy. If you hear the term used, you should ask for clarification, but it most likely refers to the property coverage section of your home insurance policy. Some use the term hazard in the same way the word peril is used in the policy. It’s most common to see policies referenced as hazard insurance when dealing with banks and mortgage companies. If you have your home insurance premium impounded in your monthly mortgage payment, it’s likely the bank refers to it as hazard insurance.

Casualty insurance generally refers to the liability insurance for property damage or bodily injury caused to third parties. In commercial insurance, property and casualty insurance are usually purchased as separate policies. However, for personal insurance, it’s very common for both types of coverage to be included in one policy. For example, the home insurance policy has both components. The coverage for your home and personal property is the first-party property coverage. The personal liability coverage section is for damage or injury that you might have caused to third parties and for which you are liable. This would also be referred to as casualty insurance.

As you can see, it can sometimes be confusing when discussing insurance with people who use different terminology. When in doubt, always ask for clarification.

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