If you’re buying a home in California right now, you need to be extra careful. The personal lines insurance market, which includes homeowner policies, has been deeply affected by the scourge of wildfires.
This is a personal issue for my own family, and for all those who have lost their homes and are preparing to move back into rebuilt areas. But the effects of wildfire on this market are far-reaching. This article is for anyone buying a home virtually anywhere in California.
Making a “Hard” Market Easier on Yourself
I recently spoke with Bernard Lauper, Managing Director with Risk Strategies, about what is often referred to as the “hardening” of the personal lines insurance market. That is, a market in which it is harder to get what you need - if you’re not careful.
Here are 5 facts you need to know, and words of advice from Bernard on how to protect yourself.
1. Wildfires have changed everything in personal lines insurance.
“In the current personal lines insurance market, it has never been harder to place insurance.”
As I’ve written about previously, the devastation of wildfires is not just an academic item of discussion for me. It’s personal. In October of 2017, northern California wildfires took the homes of members of my immediate family.
Now, I’m offering advice on moving back into these areas that have been rebuilt, not only to clients but my own family. And the reality is that insurance companies are more diligent than ever about mitigating their risk in covering my family’s personal property.
2. Premiums are up – way up. And so are limitations.
“We have seen a significant increase in premiums. In some cases, an increase of 500 percent.”
Welcome to the new normal. Many traditional carriers have been pushed out of the market. Those still offering coverage in high-risk areas are charging high premiums for limited coverage.
This means paying a high premium doesn’t necessarily mean you are sufficiently covered.
It’s never been more important to work with an insurance broker you trust to dig deep into your risk exposures. Your broker will make sure your home insurance contract includes key provisions or may recommend an excess home policy to fill in common gapssuch as:
●Building ordinance coverage– to insure a covered loss is rebuilt to current code
●100% extended replacement cost– a cushion in case of total loss, often capped at 25% in a standard policy
●Large loss deductible waiver– so you don’t have to pay the deductible before receiving the benefit if the damage is in excess of $50,000
●Worker’s compensation for house staff– to cover lost wages for the nanny, personal assistant, housekeeper, etc.
A trusted broker will also make sure you understand what conditions you must maintain to qualify for a claim settlement, such as creating brush clearance around the property.
3. Personal lines insurers are less forgiving about missed payments.
“Don't forget to pay your premiums. Missing a payment can result in cancellation with no reinstatement in higher risk areas. We recommend putting your payments on auto-pay.”
It stands to reason that if they are taking on additional risks, insurance companies are less likely to tolerate payment lapses.
They are also less likely to forgive an excess of claims. Thinking carefully before you file a claim on anything less than catastrophic loss is equally as important as paying your premiums regularly.
Was a bicycle stolen? Or a television? Before you file a claim, consider how much higher the cost of an increased premium – or worse, a cancelledpersonal property policy – will be compared to the cost of replacing the stolen item yourself. Beefing up your home security system might also be a good idea.
4. This is not just a high-risk area reality.
“The hardening insurance market is impacting everyone, even in low-risk areas.”
Insurance claims from California wildfires in 2018 exceeded $11.4 billion. As reported by USA Today, that makes that year’s series of fires some of the most expensive in the state’s history.
And as you would expect, a figure like that rocks the whole system. Bernard has seen these massive payouts harden the personal lines insurance market throughout the state. So rising premiums and the possibility of cancellation is a reality for everyone.
5. If you’re buying in a high-risk area, be meticulous.
“If you are looking to buy a property in a high-risk area, dot your I's and cross your T's and get a quote up front.”
Buying insurance for your home and personal property should never be done perfunctorily, but in a hard market like this it’s even more important to be careful.
When buying a home in California today, it’s essential you get a quote for insurance up front so you know just what you’re getting into. You can’t assume:
●Your premiums will be comparable to what you’ve had in other areas.
●A standard policy will include sufficient coverage.
●You will be eligible to make a claim without investing in property modifications.
Again, working with a trusted insurance broker who can look over every detail of your homeowner and personal lines insurance contracts before you make your purchase is paramount.
Before Buying a Home in California – Is Your Home and Property Protected with Personal Lines Insurance?
Protecting your financial future means preparing for the most devastating of losses. Next to your life or the life of loved ones, there is nothing more precious to lose – or more damaging to your future – than a home.
That’s why any comprehensive strategy we put together at Lifeguard Wealth involves working with insurance professionals like Bernard Lauper to create contingency plans for what would otherwise be a truly catastrophic loss.
And that’s just the beginning. Contact us todayso we can start putting a customized plan together for you to wisely grow, sustain, protect and transfer wealth to the next generation.