Wildfires have always been part of the California landscape. From a broad ecological perspective, wildfires can be nourishing and restorative, clearing away overgrowth and debris and making way for new life. For people and property, wildfires more often create a wake of destruction. With climate change worsening, decision-making needs to adapt at both the policy and household level to protect our shared environment and our personal property from this growing risk.
Organizations including CAL FIRE, PG&E, and the National Fire Protection Association are developing new processes and working statewide to prevent or mitigate fires, but fire risk is already present.1 Risks range from the respiratory impact of smoke-filled air to the frightening reality of fire directly threatening homes and displacing communities. “Fire season” is now an annual concern for Californians, many of whom feel uncertain about what to do at the individual level to protect their home and family finances.
Understanding Your Insurance
We’ve written before about the concept of “important, but not (yet) urgent.” This often relates to estate planning, and it’s also relevant to other difficult financial decisions without a known timeline. In each case, putting a plan in place and taking action when life is calm can better protect your family’s financial resources and help you make decisions when an emergency arrives.
Financial protection from fire risks starts with insurance. Traditional homeowners insurance covers the risk of fire damaging or destroying your house, but it’s important to know the details of that coverage to understand your potential exposure. Questions may include:
- How much money is available to rebuild the house?
- How much is available for additional expenses needed to bring your house up to the current code? Is the ‘building code’ coverage a portion of your dwelling coverage, or is it extra money on top?
- If you need to rent a new house for an extended period, how much will your insurer provide in loss of use payments?
When evaluating dollar amounts, consider that construction costs and timelines often increase significantly after a large-scale wildfire. There is no one-size-fits-all answer; the right amount of coverage depends on your own circumstances. It’s worth annually reviewing your current coverage with your insurance professional or financial advisor to make sure you still have adequate coverage.
Beyond the value of the property itself, you should also consider the personal belongings, photographs, artwork, and other keepsakes in your home. Some of these items are irreplaceable, while others — like TVs, furniture, or appliances — can be purchased again. Your homeowners policy generally covers up to a certain dollar amount of personal property, but you have to be able to itemize what was lost. Keep in mind that certain kinds of valuable personal property, like art or jewelry, must be scheduled and insured separately.2 A prudent step you can take is to create an annual inventory of your belongings, whether that means using old-fashioned pen-and-paper or your cellphone to create a video walkthrough visually documenting what you own.
When Coverage Doesn’t Renew
As fire season has expanded, many insurers are raising premiums for people who live in fire-prone areas, such as the Berkeley or Oakland hills. Some carriers are choosing not to offer or renew policies for entire zip codes, while others underwrite on a house-by-house basis using sophisticated data to assess the risks.3 In order to give homeowners a grace period when disaster strikes, the state of California can impose temporary moratoriums on insurers dropping coverage in areas where an emergency declaration has been made. Even with this temporary relief, the availability of traditional insurance coverage is diminishing for certain homeowners as insurance companies reevaluate fire risk.
There are still options for homeowners who have lost their coverage. Some insurers are launching new specialty divisions focused on high-risk areas. The California FAIR Plan also serves as the insurer of last resort in areas and for homes where standard homeowners coverage is no longer available. Though it does cover fire damage, the FAIR Plan does not offer coverage for personal liability or various other risks that are normally included in a homeowners policy. This means you have to buy a wrap-around policy to get these other coverages, and the total cost of the package (FAIR + wraparound) can often be three times more expensive than a standard policy.
When disaster strikes, it is important to have access to key financial documents and insurance information in order to pay expenses and begin the logistical process of filing claims. For many clients, we keep secure copies of these key documents as part of our financial planning work. This allows us to be a resource in an emergency, with the ability to send copies of important documents as well as helping to ensure our clients have access to the liquidity they need to smooth a difficult situation. Other practical steps you can take include maintaining a defensible space around your house and packing a go-bag with medication, extra clothing, and pet supplies. Ready.gov provides a good list of tips for wildfire preparedness and disaster safety.
At North Berkeley, we support our clients as they contemplate what ‘being prepared’ means in the context of their personal and financial lives. For some, it may mean considering a move to a less fire-prone neighborhood or spending to remove risky trees or foliage from their current home. For others, adjusting their dream of buying a vacation property to focus on coastal locations rather than a difficult-to-insure cabin in the Sierras. There is no way to completely protect yourself against financial loss, but advance planning will help you weigh the risks and make it easier to take action in an emergency.
1 The Firewise USA® Program encourages local solutions for safety by involving homeowners and neighborhoods in taking individual responsibility for preparing their homes from the risk of wildfire. Initiated in 2002 with 12 pilot neighborhoods, the national Firewise USA® Recognition Program has nearly 1,000 active member communities in 40 states, as well as a participation retention rate of 80 percent over the past decade. The program, aimed at homeowners, provides specific criteria for communities regarding wildfire preparedness, and based on this criteria, offers national recognition for their work. National Fire Protection Association
2 Why You Should Schedule Personal Property For High-Value Items Forbes
3 Fighting wildfires with innovation Institute Insurance Information
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