Here in California, we’ve had one of the worst fire seasons ever. Property damage has been concentrated in the Camp Fire (northern CA) and the Woolsey Fire (Malibu). Total insurance payouts are expected to near $20 billion. Yet for many individuals, that won’t be enough to rebuild because the dwelling limits in their homeowner’s policy is too low. Many people ask why dwelling limits are higher than market value.
Your home’s market value (what it will sell for) is determined by demand, inventory, appreciation potential, interest rates and even tax policy. Your home’s dwelling limit (cost to rebuild) is determined by construction cost with new building codes, materials, labor, architect plans, contractor profit, demolition and debris removal. Unless your home is very new, it can’t be rebuilt exactly; insurance provides for a new upgraded home that looks like your old home. It has been estimated new building codes alone add over 35% to the cost of a new home compared to the existing stock. And if there’s a disaster, construction resources are in short supply so the cost goes way up.
With higher end homes the carrier will conduct an inspection and determine dwelling limit. But for most homes dwelling limit is more arbitrary. Unfortunately, there are some homeowners who believe insurance is a commodity and insist on a low price. A low dwelling limit, or any other form of stripped down insurance, is a really bad way to get a low price.
Looking forward, insurance carriers will be raising rates and non-renewing policies in areas even remotely considered fire-prone. In California, insurers are required to provide 45 days written notice of cancellation or non-renewal. Don’t give your insurer a reason to cancel with small claims or late payments. If you, your family or friends are cancelled, let me know and we’ll explore alternatives. There is a California high-risk pool called FAIR but the insurance offered is so restrictive and expensive it should only be considered as a last resort.
Carrie Babij is President of Desert Insurance Solutions in La Quinta, and has more than 25 years’ experience with high net worth personal and commercial lines of insurance. For more information, contact Carrie at firstname.lastname@example.org.
Last modified: December 27, 2018