A wet spring followed by a scorching summer is a recipe for a dangerous fire season and it’s looking like California is headed for exactly that in 2019. Have you checked on your fire coverage for your home lately? Will your policy replace your home if it is destroyed?
These are important questions that you should answer before fire season arrives.
Types of Coverage
If you have fire insurance, your home is likely covered under one of two types of policies: a replacement cost value policy or an actual cash value policy. You should be wary of actual cash value policies.
If you have an actual cash value policy and your home is lost you will receive the lesser of your policy limit or the fair market value of your home. In the case where your home is only partially lost your payout will be the lesser of the cost to make repairs or the estimated depreciation in the value of your home.
Let’s say for example you have five acres with a small house on it. It’s possible that the value of your home is mainly in the land, and not the house itself. If your home is partially destroyed and you need $100,000 to rebuild, but an appraiser estimates you home only lost $50,000 in value, you are responsible for coming up with the remaining $50,000 on your own under an actual cash value insurance policy.
Under a replacement cost policy, your chances of being able to rebuild completely are considerably higher, but you still need to be careful to read the fine print. Make sure your policy states that it is a guaranteed or extended replacement cost policy.
Costs Change Over Time
You may have gotten your policy 10 years ago with a limit that you were confident you would never need to exceed. Have you checked on construction and material costs lately? Costs are continually changing, and it’s essential that you pay attention to what it might cost you to rebuild tomorrow if disaster struck.
If that number is higher than your policy limit, it’s time to get on the phone with your insurance agent and make some changes to your policy. Most carriers automatically increase limits each year. Others offer an automation inflation guard, and some leave it entirely up to their policyholders to keep track of costs and increase their coverage.
Ultimately, it’s your responsibility for knowing and understanding your policy. Don’t wait until you have suffered a devastating loss to find out what type of policy you have and how it is updated over time. Give us a call today, at (916) 984-3000 we will help you figure out what kind of policy you have and determine if you need to make any changes.
If wildfires threaten your home in 2019, we want your only concern to be getting your family out safely.