After our recent series of articles on changes in the Homeowner Insurance market (see below), we received several questions that we wanted to address.
Can I just have a California Fair Plan policy?
The short answer is Yes. California Fair Plan does not require that you carry a Difference in Conditions (D.I.C.) policy. However, this should also be checked with your mortgage company as they may have their own requirements. We recommend that you carry the D.I.C. policy because the Fair Plan policy is very limited in what they cover (primarily fire, smoke, and wind). The Fair Plan policy will not cover you for a broken water pipe or hose, which are the most common homeowner claims. Furthermore, a Fair Plan policy will not provide coverage for theft, liability, or several other possible losses.
Do all insurance companies offer a Difference in Conditions (D.I.C.) policy?
Not all companies offer a D.I.C. policy. However, several companies do, giving you a selection to choose from. A complete list of carriers offering D.I.C. policies can be found on the California Department of Insurance website. Most brokers will have access to multiple companies offering D.I.C. policies and can shop for the best policy for you including combining your Auto insurance for maximum discounts.
My home is worth $1.1 million and it is only insured for $700,000. Am I underinsured?
Insurance companies focus on the cost to rebuild your home with similar materials, size, and features on your current lot. To do this, the insurance company collects the features of your home and uses a third-party calculator to estimate the cost to rebuild a similar home. This is where the $700,000 number would come from. The $1.1 million is the market value of your home and is primarily impacted by your location. For example, A 2,000 square foot home in a typical California suburb could be worth anywhere from $250,000 to $900,000, or significantly more if located downtown area of a major city or in a beachfront community. However, the cost to rebuild that same home in all these areas would be relatively similar.
Do you see the government taking any action to mitigate the homeowner insurance challenges?
Legislators in Sacramento and the Department of Insurance are very aware of the challenges. Initial steps were taken in 2019 and 2020 where a new law prevented insurers from non-renewing customers for 12 months in areas declared a “State of Emergency” due to wildfires. Unfortunately, this does not address what happens after 12 months. Recent efforts have focused more on educating the public how to better protect their homes from fire. Items like brush clearance, trimming back trees and bushes adjacent to the home, installing wire mesh over vents to prevent sparks in the attic, and covering rain gutters so they do not accumulate leaves that are easily ignited. Simultaneously, regulators are working with insurance companies to encourage them to take more homes that have these preventive measures in place. As the situation worsens and home values and sales are impacted, I expect that we will see more government intervention.
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