Does homeowners insurance cover wildfire damage?

A standard homeowners insurance policy includes coverage for your home and personal property from fire and smoke damage. But as wildfires become bigger and more common in residential areas of California and other fire-prone states, many insurance companies are no longer taking the gamble of insuring homes in those high-risk markets.

Most causes of house fires are covered by homeowners insurance, including electrical fires, arson, and natural burning wildfires. If you have homeowners insurance and your home is destroyed by a natural fire, your insurer will likely pay to rebuild your home, replace your belongings, and put you up in temporary housing until your home is rebuilt. But finding standard homeowners insurance is no longer a given for residents in high fire risk, or brushfire, regions, and policy cancellations and nonrenewals have become the new normal.

If you’re unable to find homeowners insurance, you have a couple options: high-risk fire insurance via a California FAIR (Fair Access to Insurance Requirements) Plan or a surplus lines carrier that covers risks standard insurance companies won’t take on.

As of December 2019, California insurers are banned from canceling people’s policies in fire-prone parts of the state. But it’s worth noting that this moratorium only lasts one year.

Does homeowners insurance cover wildfire damage?

If you live in a wildfire area and you’re able to get a homeowners insurance policy, your home and personal belongings will both be protected from fire damage. Your insurer may also cover your additional living expenses if you’re forced to evacuate your home and live somewhere else temporarily.

If you live in a high fire risk area, pay special attention to your home and personal property coverage limits. If you’re only concerned with the cost of coverage — not its effectiveness — you may leave yourself underinsured in the event of a disaster.

Dwelling coverage

If a wildfire damages your home, your dwelling coverage will reimburse you for the cost of repairs or construction. Your dwelling coverage limit should equal the amount it would cost to rebuild your home and any attached structures at current construction and labor costs.

It’s important to keep in mind that natural disasters cause the cost of construction and labor demand in affected areas to go up, since demand is higher. In the event your home burns to the ground and rebuild costs go up, your dwelling coverage limit may not be high enough to construct the home the way it was before.

But there are certain policy add-ons, or endorsements, that account for spikes in construction costs. One such endorsement — extended replacement cost — extends your coverage an additional 25% or 50% of your dwelling limit. Guaranteed replacement cost is another type of dwelling coverage enhancement that covers reconstruction costs regardless of the price. If you live in a fire-prone region, you should consider these endorsements if offered by your insurer.

Other structures coverage

Other structures refers to the portion of your policy that covers detached garages, gardening sheds, or fences on your property against covered perils. Your dwelling coverage limit is typically 10% of your home’s dwelling coverage, but your insurer may allow you to increase your other structures limit.

Personal property coverage

Your personal property coverage covers your belongings — like your furniture, clothes, and jewelry — up to the personal property limit in your policy. Your coverage limit is usually 50% of your dwelling coverage limit, however some insurers will allow you to increase your limits to 75% of your dwelling coverage.

Loss-of-use coverage

If you’re forced to flee your home in the wake of a wildfire and stay somewhere else temporarily while your home is being gutted and rebuilt, your policy’s loss of use coverage may reimburse you for any additional expenses you incurred while on the road.

Your loss of use coverage may reimburse you for fuel expenses as well as food, hotel, and lodging expenses. Be sure to hold onto your receipts to present to your insurer when you file a claim.

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How to get homeowners insurance in fire-prone areas

It’s becoming increasingly common for California insurers to send out nonrenewal notices to insured homes in wildfire-prone regions. If you receive a nonrenewal notice, or you moved and are having a difficult time finding adequate coverage, you have a few options:

Through your state’s FAIR plan

Most states offer last-resort insurance if you can’t find anything on the open market, called Fair Access to Insurance Requirements, or FAIR Plans. A California FAIR Plan, for example, covers up to $1.5 million in structural and personal property coverage for homes in high-risk areas.

Keep in mind that these policies are typically twice as expensive as plans on the open market and don’t cover perils like theft and water damage. Additionally, FAIR Plans usually don’t provide liability and medical payments coverage, and some policies may include a wildfire exclusion for personal property damage and additional living expenses. Many homeowners will get a FAIR Plan and then pair it with a supplemental DIC policy to fill in these protection gaps.

Most states have something similar to California’s FAIR Plan, but they may call it something different. Be sure to check your state’s department of insurance for more information about insurance safety nets.

With a surplus or excess lines carrier

If you can’t find standard homeowners insurance because your home has too much fire risk, you may also be able to buy insurance through a surplus lines carrier. Surplus companies insure homes against risks that regular insurance companies won’t take on.

Surplus lines aren’t required to abide by the same state regulations as standard carriers, and are also generally more expensive than your typical home insurance policy.

With a premier carrier

If you live in a high-risk area and you were recently dropped by a standard insurer, you may be able to find coverage through a more expensive “premier” carrier like Chubb or AIG.

Chubb and AIG both offer loss-prevention and private firefighter services, so they’re built to deal with the effects of wildfires. Keep in mind that premier carriers are generally only intended for homes with a valuation greater than $1 million, and in most cases they won’t insure anything other than high net worth properties.

Why it’s difficult to get insurance in fire-prone areas

After the unprecedented and record-setting wildfire losses in recent years, homeowners insurance companies have reevaluated the amount of risk they’re willing to take on. This has manifested itself in a few different ways:

• Most standard carriers like Safeco, Metlife, Travelers, and Stillwater, may simply refuse to insure property in brushfire areas

• If your home was impacted by a wildfire or you live close to an area that was impacted, your insurer may not renew your policy

• More homeowners are resorting to last-resort insurance options with limited protection, like a state FAIR plan, and then supplementing it with a DIC (Difference in Conditions) policy to fill in coverage gaps

• Some excess or surplus lines carriers that specialize in high risk markets, like Lloyd’s of London, may cover homes in brushfire areas

Fires are getting larger and more intense. To add to the complicated matter, more people are living in high fire risk areas than ever before, and that ostensibly means more losses.

In fact, according to the Insurance Information Institute, wildfires accounted for $15 billion in insured losses in 2017 and $18 billion in 2018. Given the current pattern of shortened wet seasons and lengthy dry seasons on the West Coast, as well as the compounding effects of climate change, and overpopulation in wilderness areas, this trend isn’t expected to stop any time soon.

To lessen their liability and transfer more costs onto the policyholder, some insurers are simply pulling out of certain areas or not insuring wildfire losses, and if you do find adequate coverage, some insurers may exclude fire from your policy or require a separate wildfire deductible.

How to prevent wildfire losses

The Insurance Institute for Business and Home Safety (IBHS) has concluded that homes built within 15 feet of each other are more likely to burn in bunches. But even if your home is located in close proximity to another home, there are still some measures you can take to prevent a total loss:

• Make sure your home has a six-inch ground-to-siding clearance, and consider noncombustible siding and roofing for your home

• Clear debris from your roof

• Cover your home with Class A roofing, like concrete or clay roof tiles

• Clean your gutters regularly

• Use nonflammable fencing and gates

• Protect your windows using multi-pane or tempered glass materials and make sure all windows are closed if a wildfire is in close range

• Use deck boards that comply with California building regulations for wildfire-prone areas and remove anything flammable from underneath your deck

• Remove any brush or shrubs from underneath trees on your property, prune branches that extend over your home, and remove any dead vegetation near your home