As folks in California struggle with the aftermath of those horrific fires, the rest of us stand to learn some valuable lessons about our own home fire insurance coverage. With a typical fire claim costing as much as $40,000, this is not something you want be fully informed on. Here with what you need to know is shari o.
Let’s begin with what our fire Insurance usually covers,or doesn’t. And what kinds of extra insurance should we be considering in light of what we’re learning from those California fires.
WHATS COVERED / WHAT'S NOT?
- Structure/Attached Structures
- Personal Property
- Hotel/Restaurants (ALE)
Hazards like fire smoke and other perils are normally covered. With fire it’s oftentimes the smoke and water that takes the largest toll. After all that’s why we get Insurance in the first place. But the devils in the details. Policies go from HO1 all the way up. Most of us have HO1 (most restrictive), 2 (covers 16 specific types of Damage) or 3 (Covers anything not specifically excluded) policies but the first question you can ask is which type you have. The higher the number, the more coverage. Pretty much all cover you home structure and attached garages and other strictures. But depending on your policy detached garages, fences, sheds and other structures may not be covered. If they are it’s typically for 10% of the policy limit unless you buy add coverage. All also covered are contents like clothing appliances and furniture typically up to a certain dollar amount per item and total. Sometimes that total is a percentage of the policy amount, for example 40 to 75%. That means expensive items like jewelry art or even electronics may not be covered. So you want to ask about your caps for personal property. And most will cover the cost of hotels and dining out if your home is uninhabitable but include a time limitation which can be extended for an additional premium also known as additional living expenses. That coverage is typically about 20% of the policy value but again you can pay extra to increase it. The thing is, many folks in California were evacuating but their home wound up being ok. In that case Insurance often won’t pay for hotels and such.
It sounds like there are a lot of details most of us never even think about. What questions can we ask our carriers to be sure we’re getting the coverage we need?
WHAT TO ASK YOUR AGENT
- What’s Covered / What’s Not
- Item / Total Caps
- Coverage Needed
- Second Homes
For starters you want to ask about the coverage, exclusions and limitations we just talked about. And be sure to know your deductibles. $500 or $1000 are typical. But a lot of us have raised our deductibles to lower our Insurance premiums. And as we’ve mentioned you want to know the per items and total caps on each category of items covered. But sometimes what becomes even more important as we’re learning from California is the difference between policies that cover you for actual cash value minus depreciation meaning what you’re home and content are worth today. Versus replacement cost meaning what it will cost you to replace them. Most our our policies only cover us for actual cash value minus depreciation. The optimum coverage comes from an extended replacement value policy which will cover replacement cost typically up to 20% above policy limits,or a guaranteed replacement which will cover whatever the cost winds up being even if it exceeds your total coverage. A replacement cost policies will cost at least 10% more but could be well worth it if you current values are way less than replacement. We’re also learning a major lesson about the need to keep up with what it would costs us to replace our homes. Construction costs keep going up, building codes keep getting tougher which means more expensive to build and home values keep going up. People remodel kitchens or add a guest room, all of which should be triggers for us to revisit our insurance coverage. Also following a major disaster like the wildfires a lot of people want construction labor and materials do prices rise even more. Some carriers are now even offering inflation protection but you have to know to ask.
Only two cases are definitely not covered. The first we’re probably all aware of, Arson by a household member. But The second is fire in a vacant home. And many folks own second homes that are vacant oftentimes. A common definition is not occupied for 30 consecutive days or more Different companies define it differently so one question you want to ask is how your carrier defines that to be sure you’re covered. Typically you can get the coverage you need by purchasing an endorsement. In a typical year we see almost 400,000 claims and as much as $7 billion in Damage. The difference across states, carriers and policies have increased tremendously during the last few years and will continue to grow and insurance companies seek to cut future losses for growing numbers of claims. One of the biggest shifts has been from providing replacement to providing cash value coverage. And most folks simple pay their premium each year and are only concerned if there’s a big increase so may not even notice a major change like this in their policy. So specifically ask what has changed.
What can we do to keep those costs down?
KEEPING COST DOWN
- Safety Measures
- Shop Beyond Premium
- Raise Deductible
- Bundle Policies
The number one way to keep costs down is to not have a home fire in the first place. Ask about discounts for things like alarm systems, fire and smoke alarms and such: Insurance companies typically pay more in fire related claims than most any others. There are actually more natural claims from wind hail water and freezing or even from theft, but fire claims are the most costly. Cooking equipment is the leading cause of home fires with heating equipment including faulty fireplaces and electrical malfunctions coming in second. Shop around. Compare all the things we’ve discussed not just the premium: Raising your deductible can also save you money as long as you’re comfortable with that. Bundling policies can save you another 5 to 15%: in fact in some higher risk zones, some carriers won’t even issue one policy unless you bundle it with others. They’re basically leveraging their risk because the chances that you’ll have a fire and a hurricane for example are so small.