Whether you blame climate change, human carelessness, or some other underlying cause, there’s no denying that wildfires have been increasingly in the news the last few years. And with the combination of urban sprawl and the growth in popularity of “ranchettes” as either weekend getaways or primary dwellings offering respite from the bustle of the city, more and more American homes are being built in sections of the Southwest, Midwest, and western US that are subject to the devastation of wildfires. May is National Wildfire Awareness Month, so it seems like a good time to remind everyone about the importance of maintaining appropriate insurance coverage against this potentially ruinous event.
As a homeowner, your principal financial protection against damage from wildfires is your homeowner’s insurance policy. Such policies routinely provide coverage for damage from fire, whether originating inside or outside the home. But all policies are not created equal, and especially if you live in an area currently or frequently experiencing drought conditions, you should carefully examine your policy to make sure that it offers the type and amount of coverage you need to get back on your feet in the event that your home is the casualty of a wildfire. With more than 4.5 million American homes estimated to be at risk, this is not something you should take lightly.
This provision of your policy pays for the rebuilding or replacement of your home and any attached structures, such as a garage or a deck. The policy limit will state how much the insurance company will pay; most policy payouts are subject to a deductible, for which the policyholder is responsible.
It’s important to periodically review the limits of your dwelling coverage, especially in the current real estate market. It is likely that the value of your property has increased over time, and you want to be sure that your coverage limits have kept pace, since rebuilding now will probably cost considerably more than it would have a few years ago. This is especially true, considering the current shortages in lumber and labor. You don’t want to be stuck with paying out-of-pocket for rebuilding costs in excess of your coverage.
Especially for homes located on larger tracts of land, there are often outbuildings—tool sheds, detached garages, barns, etc.—and structures like fences that would be included in your policy as “other structures.” These are typically covered at a percentage of your dwelling coverage. So, if your home is insured for $500,000, your “other structures” coverage might be at 10% of that amount: $50,000.
If you’ve made any recent additions to your property—a deck or a backyard workshop are good examples—you should review your coverage to make sure it is still adequate for the current estimated value of your home and the new structures.
This coverage includes personal belongings that you typically keep in your home, including art, jewelry, collectibles, firearms, clothing, appliances, and others. In most cases, personal property coverage is set at 50–75% of your dwelling coverage—again, usually subject to a deductible. Some categories of personal property—electronics, guns, furs, jewelry, silverware, and others—may be subject to sublimits, which cap the amount the insurer will pay for these items.
The best way to accurately assess how much personal property coverage you need is to do an inventory, especially if you have certain items of great value: a grand piano, say, or a valuable work of art or expensive jewelry. If you have enough such items, you may want to consider either a separate scheduled personal property endorsement or a blanket personal property endorsement that raises the limits of coverage for certain categories (like jewelry).
Additional Living Expenses
Though many fail to take this into consideration, if your home burns down in a wildfire, you need someplace to live while you rebuild and recover. Most homeowner policies will cover additional living expenses such as a hotel stay, restaurant bills, pet boarding fees, and other similar costs resulting from the loss of the use of your home. Like “other structures,” additional living expense coverage is often set as a percentage of your dwelling coverage, perhaps around 20–30%. So, in the example above, these benefits would amount to somewhere between $100,000 and $150,000. You may need to satisfy a deductible, as well. Here again, you should be mindful that these expenses are likely to be higher now than when you originally purchased your policy, so assessing your current needs in light of your coverage is important.
Mathis Wealth Management recognizes that insurance—on your property, your health, and your life—is a foundational element of your overall financial security. Because our clients’ needs always come first, we take seriously our responsibility to help you stay up-to-date with insurance coverage needs and all your other important financial decisions. Learn more about how we work.