How does a Homeowner Policy Cover a Wildfire Loss?

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Except in areas where wildfires are common (often known as high fire line score areas), Homeowner Insurance covers losses caused by wildfires in general. Here is a breakdown how each coverage item in a Homeowner policy helps after a home is damaged or destroyed by a wildfire.

Dwelling: This covers the repairing or rebuilding the home and attached structures to what they were before the fire, up to the coverage limit. The coverage amount is usually lower than the market value of the home which includes the value of the land. In high priced real estate markets such as the Bay Area, it is quite common to see homes that are sold for a couple of millions. Their reconstruction cost, and thus the needed Dwelling coverage amount, is actually often a fraction of the market value.

Other Structures: This coverage repairs or rebuilds detached structures such as fences, sheds or detached garages. It is often 10% of the Dwelling coverage amount.

Personal Property: This coverage replaces the lost belongings, such as clothes, electronics, furniture. There are two important things to know about this coverage. First, there are two different types of replacements, Actual Cash Value (ACV) and Replacement Cost (RC). ACV covers the fair market value typically. For instance, if a jacket is lost in the fire, ACV covers the amount to buy a similar¬†used jacket on eBay. On the other hand, RC covers the cost to buy a similar new jacket. It is almost always worth the little extra money to get Replacement Cost. Second, there is usually a fairly low coverage limit for expensive items such as jewelry, furs, art, guns, etc. If you have any of those, you can buy an endorsement or a scheduled¬†personal property coverage specific to your high-value item. You may even need an appraisal. Pro tip, it may be a better option to store the high-value items in a bank’s vault than buying insurance for them, particularly if the items have personal or emotional connections. It’s probably a good idea to take an inventory of your belongings annually. We are working on tools to make it easy for you.

Loss of Use: After a fire, the home may become inhabitable until repaired or rebuilt. This coverage pays for renting a home or staying in a hotel, up to the limit in either time or dollar amount.

Personal Liability: This covers damages caused by the homeowner in almost all situations except in auto accidents, which should be covered by the liability coverages in the Auto Insurance. It is an important coverage for the homeowner’s financial security. For homes that are right next to each other in a city like San Francisco, this coverage is even more important. Imagine a fire starts in your kitchen. It not only damages your home but also the neighboring homes. This coverage helps you make the neighbors whole. The good news is that getting a $300K Personal Liability coverage costs only a tiny more than a $100K coverage. We usually recommend at least $300K for this coverage. Some Umbrella Policies may even require the Homeowner Policy to have $300K Personal Liability coverage.

Medical: This pays for the medical cost of the residents or visitors regardless of fault, up to the limit. Besides other restrictions, the limit is typically not high enough for major accidents. So it is not a replacement for a good health insurance and an Umbrella policy.

Extended Replacement Cost: Right after a wildfire destroys multiple homes in an area, the demand for construction labor and material is likely to soar. The Dwelling coverage may become insufficient to rebuild the home due to the resultant higher labor and material cost. This coverage provides additional coverage for the reconstruction. Sometimes in an attempt to allure consumers with a lower price, an insurance broker or agent may quote a Homeowner policy with zero Extended Replacement Cost. Be aware and thorough when comparing coverages between quotes.

Suffering a loss in a wildfire is extremely stressful. It can be helpful to prepare for the unexpected by having a solid Homeowner policy and knowing what and how much will be covered.

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