What you need to know about getting wildfire insurance

Wildfires are an ever-present danger, especially for those living in susceptible regions. As the climate crisis intensifies, so does the threat of wildfires, making it imperative for homeowners to secure comprehensive wildfire insurance. This guide provides an in-depth look at what you need to know about wildfire insurance, ensuring your home and finances are well-protected.

Most standard homeowners insurance policies include coverage for wildfire damage. However, the extent of this coverage can vary significantly. The vast majority of homeowner's insurance policies provide coverage for damage caused by wildfires, which can reimburse you for the cost of repairing or replacing your home and your belongings. On the other hand, this type of insurance frequently comes with certain coverage limits. To avoid financial pitfalls, it is crucial to understand the various types of coverage available.

Types of Coverage

Replacement Cost Value (RCV)

Replacement cost value covers the cost to rebuild your home at current prices, up to a specified limit. To estimate the RCV, consult a real estate agent or contractor about the current per-square-foot cost to build a home in your area and multiply that by your home's square footage.

Guaranteed/Extended Replacement Cost

This optional coverage pays to replace your home regardless of labor and building supply costs if the damage exceeds your policy's limits. It extends your coverage by 10% to 50% of the rebuilding cost. As noted by NerdWallet, "Guaranteed replacement cost coverage will pay whatever it takes to rebuild your home, regardless of your dwelling coverage limit".

Building Code Coverage

Building codes have evolved, and rebuilding to meet new standards can be costly. Building code coverage helps cover these additional expenses, ensuring compliance with updated regulations.

Loss-of-Use Coverage

Also known as additional living expense coverage, this helps cover the cost of temporary housing and other expenses if you are displaced during an evacuation or rebuild. This can include hotel stays, restaurant meals, and other living expenses.

Challenges in High-Risk Areas

For homeowners in high-risk areas, securing wildfire insurance can be challenging. Insurance companies may increase premiums, limit coverage, or even refuse to renew policies to mitigate their financial risk. In such cases, state FAIR insurance plans can provide a last-resort option for securing coverage. According to the Insurance Information Institute, "If the area in which you live is at risk for wildfires, make sure to take appropriate measures to protect your home against these catastrophically destructive events".

Avoiding Underinsurance

Underinsurance is a significant issue, particularly in wildfire-prone areas. A 2022 analysis by the Colorado Division of Insurance found that underinsurance in Boulder County ranged from $39 million to $179 million following a major wildfire. To avoid being underinsured:

• Regularly review and update your policy.
• Consider adding extended or guaranteed replacement cost coverage.
• Keep an up-to-date home inventory and store copies of important documents offsite.

Filing a Claim

In the unfortunate event of a wildfire, prompt action is essential. Homeowners must file a claim within 15 days of the fire and provide photos of the damage. Insurance companies can deny claims if they believe the damage amount is excessive or if premiums were unpaid at the time of the fire.

Wildfires pose a significant risk to homeowners, making it crucial to ensure your insurance coverage is adequate. By understanding the different types of coverage and regularly reviewing your policy, you can protect your home and finances from potential wildfire devastation. By gaining an awareness of the many types of coverage that are available and the significance of reviewing your policy, you will be able to make decisions that are well-informed and take measures to reduce the likelihood of experiencing financial losses.