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FIRE! Are You Prepared?

On October 8, 2017, a series of fires started burning across our state, destroying over 245,000 acres in Napa, Lake, Sonoma, Mendocino, Butte and Solano Counties. These fires were the costliest group of wildfires in the history of California and the most destructive, causing at least $9.4 billion dollars in insured damages. So we must ask ourselves, can this ever happen to me? Unfortunately, it can happen to any of us. This blog will delve into some very important information–the explanation of homeowner’s insurance and why you should review your policy.

Typically, since our mortgage company requires us to have homeowner’s insurance, we find the least costly solution and hide the documents in a file drawer expecting never to need them. But, what if the unthinkable happens?

In 2009, a neighbor called me at work about 5 p.m. and excitedly said “Come home! Your house is on fire.”  When I arrived home, the fire was out. My 92-year-old father had managed miraculously to escape unharmed. One of our dogs was at the emergency vet unable to be saved. The home was a smoldering mess, almost destroyed completely. We had the clothes on our backs, nowhere to sleep, and the graciousness of our neighbors. That was the beginning of a three-year process to settle our claim with the insurer and rebuild our home. I suddenly had two more full-time jobs–dealing with the insurer and working with the architect and contractor, in addition to running my own business. My life began to revolve around those pieces of paper defining the contractual relationship between the insurer and me–the homeowner’s policy.

Most of us have three expectations when we purchase a homeowner’s policy:
1. You’ll never need the insurance.
2. The money specified in the policy is yours.

3. The insurer will work with you to settle any claim.

The reality is:
1. Fires happen frequently and are becoming more prevalent as we extend our residential footprint into former wilderness areas.
2. The money in the contract is not yours. You have to work hard for the right to get it.

3. The insurance company is not your friend or ally. Your adjuster’s interest is to protect the insurer–not you the policyholder.

Many insurers, agents, and homeowners are too casual about the insurance process. The agent is seeking a sale. On the other hand, the client probably misunderstands the industry jargon, may just want to get coverage in place quickly at the lowest price, and doesn’t know the questions to ask the agent. The sales process results in a high potential for pain if the policy is ever needed. The claims process is governed first by the specifics of the policy. It’s a contract. Definitions matter. Contract definitions are specific to the industry, through case law and practice. Be sure you know what terms mean and how they affect coverage.

California policies have four areas covering property losses: the dwelling, other structures (such as a deck), personal property, and loss of use. The dwelling and other structures need to be insured for the cost of construction-not the market value of the property. Personal property is often based on a percentage of the dwelling coverage. Loss of use covers the extra expenses incurred while you are not in your home. Dwelling replacement cost is often misunderstood and underestimated. You need to know the replacement standard being used to replace the home. Will it be “Like Kind and Quality” or “replication,” usually referred to as “Full Replacement”? A new home built in a housing tract is likely of simple construction methods. It has lots of clean lines, standard-sized cabinets, and windows. But suppose you have a San Francisco Victorian, with custom windows, lots of detailing in the exterior and interior design, and different roof elevations. The new home might cost $300 per square foot, while the Victorian may run $600 per square foot. If you want the Victorian rebuilt as it was, it will be a much higher cost to replace it due to labor and materials.

What about coverage for codes and ordinances? Your policy provides limits to bring your structure up to current standards. For example, to replace all the windows it may cost $8,000. But if the City codes required triple-pane, non vinyl replacements, the cost would jump to $40,000. The difference in the cost might not be covered fully by the policy. Finally, market value and replacement cost are not related. Know your options-replacement cost or actual cash value (a lesser standard).  You pay extra for full replacement cost coverage.  Before purchasing a policy you must interview the agent, testing how the policy will work in specific instances. Does the policy cover your Wolf range or would that be replaced with a GE range?  Obtain and retain details about artwork, inventory, warranties.  If you have valuable collections, jewelry or artwork, have it appraised and carried on a separate schedule.  Be sure to have the policy re-evaluated every policy renewal.

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