An expert says that Californians should be more careful about purchasing insurance for their homes, as there is no guarantee that their policies can completely pay for claims such as severe wildfire damage.
In an opinion piece in the
Los Angeles Times, California Western School of Law professor Kenneth S. Klein discussed the reasons why so many Californians lacked adequate insurance following the latest strings of wildfire incidents across the state.
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“Insurance industry data reveals that for a score of reasons — inflation of the cost of work and supplies after a mass disaster, the rising cost of home construction, the difference between the cost of construction and the cost of buying an existing home — at least 80% of the homes in the United States have less than 80% of the coverage required to completely rebuild after a fire,” Klein wrote.
“Almost everyone assumes they have enough insurance, but evidently they don’t.”
Klein pointed out that the Californian insurance inadequacy could be traced back to a clause hidden in most policies that says that the homeowner is the expert on the value of his or her home. Under this clause, this means that if the amount of insurance purchased for a home is not enough, it falls on the homeowner to pick up the difference.
Unfortunately for Californian homeowners, that clause is often enforced by state courts.
“You may say, ‘My insurance provides 125% coverage of my home value, so I am comfortable that I have enough insurance.’ Don’t take comfort in that policy,” Klein explained.
“The percentage is pegged to the value of the home at the time of purchase, meaning it can sound like a lot more than it is in reality. Real estate values rise — sometimes quickly — and building costs rise after large-scale disasters due to simple supply-and-demand economics.”
Klein believes that the state should change its fire insurance regulation laws to allow for full home replacements, but noted that such an overhaul would take years to go through red tape.
Until state insurance rules can be fixed, Klein suggested that homeowners should purchase insurance for their properties with enough coverage to pay for a full reconstruction.
“Before you purchase or renew a home insurance policy, send an email to the insurance broker/agent that says: ‘I want enough insurance that if my home burns down in a wildfire, I have enough coverage to rebuild my home. Please tell me what amount of coverage I should have, and quote me the rate for that amount of coverage. Please respond by email rather than by telephone or in person. Thank you.’”
“When the broker/agent responds to that email, purchase the amount quoted immediately,” he added. “Keep a record of the correspondence somewhere other than in your house — even documents in a fire safe are not “safe” in a fire. Repeat this exercise every single time that you renew your homeowner’s insurance.”
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