Does Renters Insurance Cover Fire Damage?

If you rent and a fire goes through your building, the question is not really whether you have coverage. It is how much of your life that coverage actually puts back.

A standard renters policy covers fire. That part is not in doubt. What decides the size of your check is a single phrase most renters have never read, and it can separate two otherwise identical policies by thousands of dollars.

Fire is a named peril on every standard policy

You do not have to go hunting for fire in your policy. It is one of the perils renters coverage was built around. The Insurance Information Institute states it plainly:

Standard renters insurance protects your personal belongings against damage from fire, smoke, lightning, vandalism, theft, explosion, windstorm, water and other disasters listed in the policy.

The National Association of Insurance Commissioners, the organization of state insurance regulators, describes the same standard form:

Typical coverage under this form includes damage from fire, lightning, explosion, smoke, vandalism, theft and water-related damage from property utilities.

Notice that smoke is listed separately from fire in both. That matters more than it sounds. In most building fires the flames stop somewhere, and a great deal of what is ruined past that point is smoke, and water from putting the fire out. It falls under the same personal property coverage.

Your landlord's policy will not help you

This is the most expensive misunderstanding renters have, and the NAIC addresses it directly:

Your landlord's insurance doesn't cover your personal property in the event that it is stolen or damaged as a result of a fire, theft or other unexpected circumstances.

What the landlord's policy does cover is the structure. In the NAIC's words, "Your landlord's coverage will take care of damage to the building's structure." The building is theirs. Everything you carried into it is yours, and it is uninsured unless you insured it.

Being unable to live there is a separate coverage

A fire does not only destroy things. It makes a place unlivable, sometimes for months. Renters policies handle that under additional living expenses:

If your home is destroyed by a disaster that your policy covers and you need to live elsewhere, renters insurance covers your additional living expenses. Policies will generally reimburse you the difference between your additional living expenses and your normal living expenses. ALE covers hotel bills, temporary rentals, restaurant meals and other expenses you have incurred while your home is being rebuilt.

Read the middle sentence twice. ALE pays the difference between what you normally spend and what you are spending now. It is not a blank check for a hotel. It is the gap between your usual cost of living and the new one.

The line that decides the size of your check

Here is the part that separates a claim that rebuilds your life from one that quietly disappoints you. Your personal property is written one of two ways.

Actual Cash Value pays to replace your possessions minus an amount for depreciation (the reduction in the value of items due to age and use) up to the limit of your policy.

Replacement Cost pays the actual cost of replacing your possessions (with no deduction for depreciation), up to the limit of your policy.

Depreciation is the entire story. A five-year-old couch is not a couch to an adjuster. It is a couch with five years subtracted from it. Under actual cash value you receive the depreciated figure, and then you go shopping at today's prices with it. Under replacement cost you receive what the replacement actually costs.

Two policies can carry the same limit, the same deductible and a nearly identical premium, and pay out amounts that are nowhere near each other. The difference is one phrase you have probably never looked for.

Three things worth checking tonight

They are all in the policy you already have.

• Whether your personal property is written at replacement cost or actual cash value
• Your personal property limit, and whether that number would genuinely replace what is sitting in your rooms right now
• Whether you carry additional living expenses, and what the cap on it is

Most renters can answer none of the three, and that is the real reason fire claims go badly. It is rarely that the coverage was missing. It is that nobody knew what shape it was in.

Know before you need it

The best time to understand your renters policy is on an ordinary evening, not the night of a fire. Drop your policy into MyPolicyShield and ask it in plain English: am I replacement cost or actual cash value, what is my personal property limit, and do I have additional living expenses.

One upload, three questions, and you will know exactly what you are holding.