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Wildfire: Insurance when all is lost
California wildfire victims are, for the most part, protected by their homeowner insurance policies.
October 29, 2003: 11:25 AM EST
By Sarah Max, CNN/Money Staff Writer

BEND, Ore. (CNN/Money) According to the latest tally, the wildfires in California have burned more than 600,000 acres and destroyed at least 2,000 homes.

Most, if not all, of those homes will be covered by insurance.

Although standard homeowners policies are full of fine print and exclusions -- including damage caused by war, terrorism, flooding and earthquakes -- loss from fire is one event that is by and large protected by insurance. (Unless of course you purposely set your home on fire.)

"Fire is one of the most basic areas of coverage," said Don Griffin, an assistant vice president of the National Association of Independent Insurers. Insurance companies already are mobilizing catastrophe teams to begin assessing the damage and write checks for additional living expenses.

"This disaster is definitely covered under standard, home, renters and business policies, as well as comprehensive auto policies," said Jeanne Salvatore, vice president of consumer affairs for the Insurance Information Institute.

Still, homeowners who have not recently updated their insurance policies to account for renovations or higher building costs could end up short.

Moreover, homeowners in California, and possibly throughout the country, ultimately will pay for the damage done by these fires in the form of higher insurance premiums.

"This will have an impact on rates, but mostly in that region... unless it gets really big," said Griffin, who estimates that the losses will easily surpass $1 billion.

"A house worth $400,000 might have a total claim of more than $1 million after you consider the insurance on contents, other buildings on the property and living expenses," Griffin added.

Learn the details before a disaster

Under most homeowners policies the replacement cost of the home itself is fully insured. Mortgage companies require that borrowers have, at a very minimum, enough insurance to cover the value of their loan. And most homeowners go beyond that, opting for insurance that will pay to rebuild a house from the ground up.

But there are caveats.

For example, unless you buy a policy that specifically covers the cost of replicating a historical home, your insurance may not pay to replace handcrafted crown moldings or elaborate stained glass. Under a standard policy, your home will be replaced with standard building materials.

If you upgraded your home but not your insurance, your claim may not be enough to replace those recent renovations. Similarly, rising building costs also could leave you short if you don't update on an annual basis.

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"The one thing about this disaster is there are going to be a lot of total losses," Salvatore said. "People with standard policies will be getting only what's in the policy."

Extended or guaranteed loss policies will go above and beyond that amount, though this coverage does come at the price of a higher premium.

How much fire victims receive for the contents of their home also depends on the policy.

A policy that covers only the cash value of a home's contents will, as you might guess, issue a check based on their actual value. If your old computer is worth $100, that's what you can expect.

More commonly, however, homeowners choose a policy that covers the replacement cost of their things. In this case, you might get $1,000 to replace that old $100 computer. But again, there are limits, especially in the case of expensive art or jewelry.

The value of the land itself is not insured by a homeowner policy, according to Griffin. In other words, if the value of property plummets because the neighborhood has been ravaged by fire, homeowners are not insured against that loss.

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Many policies do, however, have an allowance for replacing trees and shrubberies lost by fire or other covered disasters. Typically, policies will pay up to 5 percent of the value of the structure to replace landscaping. A policy with $500,000 worth of insurance on the structure would pay $25,000 to replace the trees and shrubs, though there usually is a limit of $500 per plant.

A final consideration for homeowners insurance is the cost of additional living expenses.

Comprehensive homeowners policies generally pay for the cost of staying in a hotel, eating in restaurants, and buying clothing and other essentials. "Adjusters are already in California providing checks for additional living expenses," Salvatore said. "Many people aren't aware they have this benefit."

To that end, you'll want to make sure your policy gives you enough of an allowance to get by while your home is being rebuilt. "You still have to pay your mortgage, even if you can't live in your home," Griffin said.

In addition to finding the right coverage and keeping your policy updated, you'll want to create a home inventory. Photograph or videotape your home as additional proof of what you own. Then, store a copy of that information and your insurance policy outside your home, such as in a safety deposit box or at a relative's home.  Top of page




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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.