The Fire Next Time: Protect Your Assets with the Right Coverage

In the aftermath of the devastating California wildfires, now is a good time to review your homeowners insurance coverage.

Below are some of the important items that should be covered under your policy, to ensure you are protected.

Dwelling Limit—Is the limit adequate to rebuild your home to like size and quality if your home needs to be rebuilt from the ground up? If available, ask for 150% extended replacement cost, unless your carrier automatically provides an even higher amount. Some of the high-value carriers offer uncapped or high extended replacement cost at 200%, except if the loss is from a wildfire, in which case they will drop it down to 150%. Find out what your policy provides. Additionally, some carriers offer fire mitigation services that will work with the local fire authorities in the event of a fire to help mitigate damage to your home. The services include spraying your roof with a fire retardant or taking other measures to try to protect your home from burning. Check with your agent/broker to determine if this service is offered.

Other Structures and Contents—Coverage for detached structures includes garages, sheds, hardscaping, fencing, pergolas, pools, and other items not attached to the dwelling. The limits on the policy are all determined as percentages of the “dwelling limit.” Companies use different percentages, and the most common limit is 20%; make sure the limit is adequate for what is on your property and increase the limit as needed to get adequate coverage. Also, unlike the dwelling coverage, there is no replacement cost extension for other structures. What you see is what you get.

Contents—Check that your limit is adequate to cover over all of the personal property you have in your home, including clothing, furnishings, electronics, and appliances (but excluding built-in appliances). These items add up faster than you may realize. It’s a good idea to take a video or photo inventory of your belongings and keep receipts when you purchase expensive items. Keep the video/photos and receipts in a safe deposit box or storage outside of your home to make sure you can access them if you need to. High-value items and collectibles like jewelry, fine arts, wine, silverware, and sports memorabilia can be scheduled on the policy for an additional cost.

Loss of Use—This valuable coverage will pay for hotel or housing rental if your home is damaged or needs to be rebuilt. Some policies offer a specified amount while others state “ALS” (Actual Loss Sustained) or Reasonable Time. If your policy covers a specified amount, confirm that it would cover several years of rental expenses; in the case of a wildfire or neighborhood-wide destruction, finding a rental would be difficult, and rent will likely increase if demand is high. The time it takes to rebuild a home can also be quite long if demand is high for contractors. This is a key coverage!

The insurance review would best be accomplished by contacting your insurance agent or broker, at which time you communicate any changes you may have made that are not accounted for on the policy, such as upgrades, security features, and the purchase of high-value items. During the checkup, ask your agent to make sure your limits are adequate.

Note that items like central station fire alarms and fire sprinkler systems are not the best ways to mitigate potential damage for wildfires, as wildfires are so fast moving. They are, however, helpful for standard house fires.