What You Need to Know About Wildfires and Insurance Coverage
Wildfires occur during several months of the year known as fire season. This season used to span only a few months, but due to environmental changes over time, the fire season now stretches from late spring through the end of the calendar year, lasting six to eight months.
Wildfires have become so prevalent that many say there is no "fire season" anymore. The risk is present year-round. There already have been more than 38,000 wildfires in 2020, which exceeds last year's number in the same time period (from January to the end of August).
Although the ability for a wildfire to spread has a lot to do with environmental conditions, 85% of wildfires are human-caused and the remainder are natural, caused by lightning or lava. Wildfire embers blown by wind cause many of the fires that burn down homes. As a homeowner, you can take steps to protect yourself from the financial impact that wildfire can have by getting wildfire insurance. Here's a breakdown of what wildfire insurance covers, how it works, and where to get coverage.
The 10 states at the highest risk of wildfire are California, Texas, Colorado, Arizona, Idaho, Washington, Oklahoma, Oregon, Montana, and Utah. 4.5 million properties are at high to extreme risk of damage in these states. Not all insurance companies will cover wildfire damage in a high-risk area, so you may have to get a FAIR Plan policy.
What Is Wildfire Insurance?
A standard home insurance policy will cover fire damage, but if you live in an area where you are at high risk for wildfires, you may need to buy additional coverage to protect you. Many types of insurance provide coverage for wildfires; there is no one policy to protect you overall. For example, home insurance will cover wildfire damage to your home, land, and personal belongings. Auto insurance will provide coverage for your car. Getting a good policy is essential because it will help you get paid the most in a claim.
What Kind of Wildfire Damage Is Covered by Your Insurance?
Standard residential insurance policies will cover damage from fire and smoke, therefore wildfire damage is typically included in homeowners insurance policy coverage. These coverages include:
- Damage to the building or main dwelling structure
- Additional structure coverage
- Landscaping, pools and backyard items
- Additional living expenses
- Debris removal
- Building-code upgrade coverage (included in some policies, but needs to be added as an endorsement in others)
- Personal property or contents
For condo owners or renters, residential insurance provides coverage for your personal contents, as well as additional living expenses. One important factor in knowing how much you will be paid for a wildfire claim is understanding the basis of claims settlement in your policy.
How Much Is Paid Out for a Wildfire Claim?
Because every insurance policy is different, the limits in your policy (as well as the exclusions), will be the deciding factors on how much you might be paid for a claim resulting from a wildfire. Choosing a good insurance company that provides the highest limits, or best coverage options will ensure you get paid more in a claim.
Wildfire Claims Settlement Options
There are two categories of coverage, Actual Cash Value, and Replacement Cost. A home insurance company can pay a claim based on the following options:
- Actual cash value or replacement cost: The Actual Cash Value policy will only pay depreciated value, and this will not be enough to rebuild your home. Replacement Cost will give you enough to rebuild your home (up to the policy limit). Actual Cash Value and Replacement Cost can apply to the building alone, or to the building and personal property. Replacement Cost is optional with many insurers, so you need to ask what your coverage is when you buy your policy, or see if you qualify for an upgrade. For example, some homes with older roofs do not qualify for certain types of coverage. Each insurance company has different criteria. Shopping around for the company that will give you the best coverage will make thousands of dollars in the difference in what you get paid in a claim.
- Guaranteed or extended replacement cost: This coverage will pay up to a certain amount beyond the insured value if the cost of rebuilding is higher than the amount insured on your policy. To qualify for this kind of coverage you have to insure your building to value. If your home is underinsured, and you have a claim due to a wildfire, you will not be paid what you need, and you may not qualify for replacement cost settlements.
Other Coverages That Affect How Much You Get Paid
Your choice of the insurance company and the level of coverage you choose will also dictate how much you will get paid for the following:
- Additional Living Expense Coverage: If your home is made uninhabitable by a covered risk, such as wildfire, then you may be able to get compensation for your Additional Living Expenses (ALE) while your home is rebuilt or made habitable again. Most policies have limits to how much they will pay. Consider increasing the standard limits by asking to add more coverage. Some insurance policies for high-value homes offer unlimited additional living expense coverage. Each company is different.
- Limits of Insurance: Insurance policies contain clauses and exclusions that can limit the amount you will get for certain types of personal property. Be sure to ask your insurance company if the limits apply in a fire claim, and ask about any additional coverage available to you.
Where to Get Wildfire Insurance
You can get the insurance that will cover you for losses arising from a wildfire from your home insurance company. If you are in an area that is at high risk for wildfire, some insurance companies may not be willing to insure you. In cases like this, you can look at a FAIR Plan home insurance option or contact your state commissioner's office for guidance. In California, for example, residents can get wildfire insurance coverage through the California FAIR Plan.
- Standard home insurance covers damage caused by fire
- People living in high-risk areas may not be able to get standard home insurance coverage, in these cases, FAIR Plan Insurance should be considered
- Replacement Cost Coverage and Actual Cash Value are two types of coverage that determine how much you get paid in a claim. If you do not ask for Replacement Cost Coverage (or qualify for it), you will not get paid enough to rebuild your home or replace personal property.
- Additional living expense coverage is limited on most home policies. Consider buying higher limits, or shop around for insurance that can offer more coverage.
- Learn about your home insurance options and review the type of policy you have before you need to make a claim to make sure your policy will provide adequate coverage for wildfires.