Do You Have Enough Insurance Coverage On Your Home?

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After the wildfires in California, we have seen many homeowners struggling with their homeowners insurance. What is left may not be enough to rebuild their home.

The California Wildfires revealed a real problem with homeowner’s insurance coverage for many homeowners. The damage and destruction exposed the inadequate coverage limits of many fire victims. The cost to rebuild in many of these areas far exceeded many homeowner’s insurance coverage limits. This left many, who are insured, in a very tough position. They were still responsible to make their mortgage and property tax payments, even though they did not have a home to live in anymore. While most policies provide for the expense of temporary housing, those funds only go so far. 

Homeowners find themselves asking: Do they dip into their savings to supplement the insurance proceeds and rebuild, or do they take those insurance proceeds, pay off (or partially pay off) the mortgage and try and sell the lot?  These are tough choices for many obvious reasons. These problems never would have come about if they had the right property insurance coverage.

At Residential First Capital, we have been originating and servicing loans for many decades now. We are also involved in a lot of construction deals, understanding how much it costs to build a home. We have had a never-ending struggle with insurers to make sure our clients have ample insurance coverage to rebuild their homes in the event of the ultimate disaster, such as the wildfires. Many argue that a home burning down does not cause a complete rebuild, saying that the foundation might be salvageable. We have found you cannot count on that. In fact, many foundations were not salvageable due to the intense heat of the fire. If your foundation cannot be reused, you would now have to tear that out and repour a new one. In addition to the standard rebuild cost, you have the added cost of removing what is left of the old structure and the foundation. 

We have found that many insurers are using outdated construction cost data to determine coverages. We constantly disagree with them on what it costs to rebuild a home and they fight us on the coverages we feel our clients need. They compete with other insurers on their premiums as they know how cost conscience most consumers are. Hence, they have a built-in incentive to sell you less coverage than you might need. However, if you look at the difference in cost between the coverage amounts, that additional premium expense is nominal compared to the benefit of the additional coverage in the event of disaster. Construction material costs and labor costs have both risen. This also should be factored into your coverage limits you negotiate with your insurer.

We recommend you do research about your home. Ask 2-3 contractors the retail cost per foot to rebuild your home if you hired a licensed contractor to do so. Error on the high side. Multiply that cost per foot times your square footage and compare it to the dwelling coverage + Guaranteed Replacement Cost or Extended Coverage on your current Dec page of your insurance policy. It will give you a pretty good idea if you have the proper coverage or not. For the nominal cost to increase your coverage, you should seriously consider doing so.

– Ken Thayer, President of RFC

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