California is well-known for its expansive beaches, Hollywood celebrities, and carefree culture, but the Golden State is not all sunshine and rainbows: In the year 2020 alone, wildfires destroyed over 4.2 million acres. In fact, according to annual statistics compiled by the California Department of Forestry and Fire Protection, the number and severity of wildfires in a single year in 2020 more than doubled the state’s previous record. Every year, these wildfires cause billions of dollars in damage, with estimated costs exceeding $10 billion as of October 2020.

With wildfires occurring at such a high rate in California, it is critical for residents to understand how their homeowners insurance policies can assist when the unthinkable occurs. By taking the time to understand your policy, you can ensure that you have enough wildfire insurance to cover the costs of a California wildfire.

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What causes wildfires in California?

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According to the National Park Service, humans are responsible for approximately 85 percent of wildfires in the United States. The following are the most common causes of wildfires:

• Debris on fire

• Cigarettes thrown away carelessly

• Mistakes in equipment

• Arson on purpose

• Campfires that are left unattended

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Lightning bolts, in addition to being caused by humans, have the potential to start wildfires if they last for an unusually long period of time. Dry lightning strikes, particularly during the 2020 California wildfires, were a major cause of the record-breaking burns. The hot, dry climate of the state only added fuel to the 14,000 dry lightning strikes that sparked fire after fire in 2020.

Living in a state with a high risk of wildfires, such as California, can make it difficult to find affordable homeowners insurance. Insurers charge for coverage based on the level of risk they take on by accepting you as a policyholder. As a result, some insurance companies will charge higher premiums, raise deductibles, cap payouts, or deny coverage entirely for homes in high-risk areas.

Is home insurance valid in the event of a wildfire?

The majority of standard homeowners insurance policies will cover fire damage, including wildfires. There are numerous coverage options available to help policyholders afford the cost of repairing or replacing their homes, as well as replacing personal property.

Dwelling protection

This coverage pays for the cost of rebuilding or replacing your home’s physical structure as well as any other structures attached to it following a wildfire, such as decking or attached garages. Coverage amounts vary, but most policy limits are based on the cost of rebuilding the entire house using local materials and labour costs. These costs vary over time, depending on the rate of inflation and other economic factors. If you are unsure about your policy limit, consult your documents and your insurance agent to learn how you can obtain more coverage if necessary.

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Coverage of other structures

Like dwelling coverage, “other structures” coverage pays for the cost of rebuilding or replacing unattached structures on your property damaged by wildfires, such as sheds, detached garages, fencing, and pool houses.

Other structures coverage is typically calculated as a percentage of your home coverage. If your dwelling coverage is set at $300,000 and your other structures coverage is set at 15% of that policy limit, your limit for other structures on your property is $45,000. When you add structures to your home, it is a good idea to review your homeowners insurance policy to ensure you have adequate coverage.

Personal property insurance

While your home and other structures coverage does not cover items such as furniture, kitchen appliances, or electronics, your personal property coverage does. Personal property coverage limits typically range from 50 to 70% of the limit specified in your dwelling coverage. If you previously had a $300,000 limit and your personal property policy limit is 60% of your dwelling coverage, you would have $180,000 in coverage for your belongings.

The best way to determine if you have enough coverage is to take a home inventory of all your belongings and calculate how much it would cost to replace each item if it were destroyed in a California wildfire.

Coverage for loss of use

This coverage, also known as “additional living expenses,” pays for hotel stays, meals, and other expenses incurred as a result of being unable to live in your home due to a wildfire. Residents in California with loss-of-use coverage can file claims with their insurance companies if authorities order them to evacuate, even if the fire never reaches their home. The percentage of dwelling coverage used by your insurer to determine coverage amounts determines the loss-of-use policy limits. These limits can be increased by the policyholder as needed.

Is Condo Insurance Covered for Wildfires?

In most cases, condo insurance policies will cover wildfire damage to your living space’s interior walls. The exterior of your condo should be covered by the master policy of your homeowners association. Each condo insurance policy has different coverage options that can assist policyholders in affording the cost of replacing, repairing, or rebuilding personal property damaged in a wildfire event.

Coverage of interior walls

Coverage for specific items inside your condo may be provided depending on the type of master policy in place with your HOA. An “all-in” master policy covers things like appliances, carpets, electricity, and plumbing, whereas a “bare walls” policy covers nothing inside the unit’s walls.

You will most likely be able to use your policy to pay for the cost of repairing or replacing damaged items within the walls of your condo that are not covered by the HOA master policy if you have interior walls coverage. For example, if your HOA has a bare walls policy, it will not cover the cost of replacing kitchen countertops that have been damaged in a wildfire. You would be able to recoup the cost of replacing these items with interior wall coverage.

Personal property insurance

Personal property coverage, like homeowners insurance, allows condo owners to recover the cost of replacing personal items such as electronics, furniture, appliances, and jewellery. The policyholder establishes coverage limits in the form of a dollar amount.

Even if you have an all-in policy, your HOA master policy will not cover your personal property. Check with your condo insurance provider to ensure you have adequate coverage for your belongings.

Coverage for additional living expenses

This option, like homeowners insurance, covers any expenses incurred as a result of being displaced from your condo due to a wildfire. If you have chosen additional living expenses coverage, your insurance provider may cover expenses such as hotel stays, restaurant bills, pet boarding, and laundry services. Even if the fire never reaches their condo, Californians who have been ordered to evacuate can file a claim.

How do you obtain insurance in high-risk wildfire areas?

As previously stated, some insurers may refuse or discontinue coverage for homeowners who live in high-risk wildfire areas. This is especially common in California cities like Los Angeles, San Diego, and Sacramento. If this occurs, homeowners have a few options for obtaining coverage.

The FAIR Strategy

The Fair Access to Insurance Requirements (FAIR) Plan is a state-mandated programme that provides individuals living in wildfire-prone areas of California with access to insurance products. If you own property in California and meet certain building requirements, you can apply for the plan.

While the FAIR Plan provides coverage solutions for high-risk homes, residents may want to thoroughly explore the voluntary market options. FAIR Plans are not only more expensive, but they also have fewer coverage options and lower policy limits. For example, the California FAIR Plan currently does not provide personal property or replacement cost dwelling coverage. Furthermore, the plan excludes:

Houses with pre-existing damage and no repair plans

• Homes that have been vacant or unoccupied for an extended period of time
• Properties used for federally illegal purposes, such as marijuana cultivation
• Line carrier surplus or excess

Residents may be able to obtain homeowners insurance through a surplus or excess line carrier in addition to the California FAIR Plan. These insurers provide coverage for homes that carriers in the traditional marketplace will not accept as clients. Because surplus lines are not subject to the same state regulations as standard carriers, they are more expensive than the average homeowners insurance policy.