Stop, Drop and Cover: Home Insurance and Wildfires

If you’re a Californian, you are well aware that certain parts of the state are prone to wildfires and the recent drought is worsening the situation. These wildfires consume hillsides of brush that have been dried by the California heat and lack of rain. They destroy everything in their path, including homes, cars and other property. The worst wildfire season in years is now forcing many Californians out of their homes and has caused them to face destruction of their houses and other prized property. What should homeowners know about insurance coverage in the event of a wildfire?

It is important for those who live in areas at risk of wildfires to be sure they have the proper insurance coverage. Amy Bach, executive director of United Policyholders, a nonprofit group that helps consumers with insurance issues, urges homeowners who live in these areas to double-check their policies to ensure they have adequate coverage to rebuild their home if it is destroyed. Although damage to your home from a wildfire is covered by a standard homeowner’s insurance policy, this coverage may not be enough. You can take your policy limit and divide it by your home’s square footage to get a rough estimate. If the number is less than $200 per square foot, you’re probably underinsured and should consider buying more coverage. You should also be sure you have “code upgrade” coverage, which helps cover the cost of bringing your new home up to the latest building standards.

In general, damage to your home from a wildfire and any other sort of fire is covered by a standard homeowner’s insurance policy. Repair and cleaning of smoke-damaged furniture and water damage from firefighting efforts are also covered. The amount a policyholder receives depends on how much coverage was purchased and the deductible — the amount paid out of pocket, before the policy pays. If you live in a fire-prone area, your homeowner insurance premium may be affected. However, some insurers may offer discounts for homes in communities that have taken steps to reduce wildfire damage.

Additionally, a standard policy covers “additional living expenses” in the event of a disaster, including a fire, which includes the cost of living away from home if there’s a mandatory evacuation, or if the home becomes uninhabitable. These costs include hotel bills, meals out and other expenses while the home is being rebuilt, plus the purchase of new clothing. It is advised that you save receipts to document your expenses. Coverage for additional living expenses varies by insurer, but policies often provide coverage for 20% of the total insurance on your house.

Do you have any other advice for homeowners in wildfire-prone areas? How would you advise clients who are looking to buy in these areas?

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