How horrible to watch your American
Dream go up in smoke. Even worse, to
find out your insurance coverage won’t replace it. Winds can carry hot embers
as far as 5 miles, meaning wildfires should be
a concern to all of us.
Wildfire season started earlier than normal
this year and already thousands of acres and
scores of homes and structures have burned.
The fire chiefs say this could be the worst fire
season ever. Wildfires don’t just burn homes
that are on the outskirts of town.
One obvious lesson we should have
learned from past wildfires was the disparity
in insurance policy performance after these
wildfires. According to the Census Bureau,
after the 2003 wildfire, only 46 percent of the
homes had been rebuilt by late 2007.
Why do some homeowners restore their
homes and quickly return to their lifestyle
while others are left to haggle over major
additional out-of-pocket expenses?
“Because all homeowner policies are not
created equal,” says Mary Hammett, personal lines broker with Westland Insurance
Brokers.
Smart Business spoke with Hammett to
see what consumers should know about
their homeowner insurance policies and how
to select proper coverage.
If a fire destroys your custom-built home with
lush landscaping, will your homeowner’s
insurance policy cover the loss?
Probably not. Most people are covered by a
mass-market homeowner insurance carrier
and have been insured by the same agent for
many years not realizing they have outgrown
their policy. These policies are not designed
for high-value homes with custom work or
expensive landscaping like 50-foot-high palm
trees. After the fire, homeowners often end
up battling their insurance carriers to provide
coverage that they didn’t realize they hadn’t
purchased in the first place, delaying hope of
rebuilding their lives fully and quickly.
What can consumers do to ensure they have
the right policy for their custom home?
By working with an experienced independent broker, a policy can be tailored to their
individual needs. Brokers have access to insurance companies who specialize in insuring high-value homes. These policies are designed to anticipate the needs and demands
of these affluent homes and the lifestyles of
their owners. These policies automatically
provide broader coverage and can be customized to eliminate coverage inadequacies.
What is meant by ‘coverage inadequacies’?
According to the California Department of
Insurance, as many as 40 percent of homeowners statewide lack the insurance needed
to cover home replacement costs. It is challenging to determine replacement costs,
especially for custom homes with many
unique features and exceptional building
quality and architectural design. Building
costs are rapidly changing with international
demand and the cost of gasoline. Because of
such changes, high-value home insurance
carriers provide an additional service to their
policyholders with an on-site replacement
cost evaluation. The inspection is very technical and is completed by a highly trained
professional in construction and interior
design. This in-depth assessment removes
the guesswork and assists the homeowner in
purchasing adequate insurance coverage.
Why is it important to have adequate coverage for your dwelling and other structures?
You need adequate dwelling coverage
because policies do not guarantee replacement. Additionally, if your home is damaged
or destroyed during a catastrophe, costs to
rebuild can double overnight due to the huge
demand on materials and labor to rebuild
numerous homes at the same time. High-value home policies typically provide 200
percent extended replacement cost, providing you a sufficient buffer from catastrophic-loss increases. Most mass-market policies
provide up to only 125 percent of the coverage limit. So if you are underinsured to begin
with, exponentially the problem worsens if
your loss is during a catastrophic event. This
coverage difference alone equates to hundreds of thousands of dollars less coverage
with which to rebuild your home.
What are other areas where policies may
lack in coverage?
Loss of use. Most mass-market policies
provide 20 percent of the dwelling amount
with 24 months max, whereas high-value
home policies provide ‘actual loss sustained’
without a dollar or time restriction.
Landscape coverage. Most mass-market
policies provide anywhere from $2,000 to
$10,000 total coverage for landscaping with a
maximum of $500 for any one plant, tree or
shrub. These policies also can’t add coverage
should the need exist, whereas high-value
home policies can insure those palm trees.
Building code. Most mass-market policies
provide only 10 percent or 20 percent of the
dwelling limit. The older the home the more
important this coverage is since more building codes will have changed. High-value
home policies include all building code costs
with no capped payout, even when the costs
exceed the coverage limit.
Contents. Make sure your policy provides
replacement cost and will not depreciate the
value of your contents. All policies have internal limits for certain items restricting coverage, so schedule fine art and jewelry or collectibles so these items can be replaced.
MARY HAMMETT is a personal lines broker specializing in the affluent market with Westland Insurance Brokers. Reach her at
(800) 541-0711 x3217 or [email protected].
