Your fire insurance policy can be 1) a Replacement Cost basis or 2) an Actual Cash Value basis. Fire insurance based on Replacement Cost will pay a claim without calculating depreciation costs into the payout amount. Whereas Fire insurance based on Actual Cash Value will calculate depreciation into the payout amount. The type of replacement coverage you want is chosen at the time the fire insurance policy is purchased, not at the time of a claim. Your fire insurance premium will be different for each typ of replacement cost option.

The value that the fire insurance company insures the building for is determined by the building age, size, square footage, use of building, type of building, location and distance from fire hydrants. This value is determined by the fire insurance company at the time the insurance policy is purchased, not at the time of a claim.

To protect their financial interest in a building; before issuing any loans, the finance company requires fire insurance on that building. If the building were destroyed by a fire or other named peril within the policy – that lender wants that property restored to its original value. And they want a fire insurance company to do that.

The liabialty section of a fire insurance policy also serves to protect the building owner and the lender. If the builiding owner is found to be liable for damage to another person while that person was on the property, the fire insurance company would pay damages.

The purpose of fire insurance policies is to protect; whether in the form of the actual property or in the form of liability.   Call your insurance agent today for a complete review or your policies.