A growing number of homeowners in California are finding themselves underinsured, meaning they don’t have enough insurance coverage to fully rebuild their homes after major damage, such as from wildfires. Experts warn that this problem is becoming more common, leaving many families at risk of having to pay out of pocket if disaster strikes.
Why Homeowners Are Underinsured: According to an experienced insurance agent, as many as 10% to 15% of homeowners are underinsured. This happens when people choose policies with coverage limits that are too low to cover the full cost of rebuilding their home after major damage. In California, where homes are frequently damaged by wildfires, being underinsured is a serious concern.
One reason for this is that many homeowners buy insurance based on the market value of their home, which is often much lower than the cost of rebuilding. The problem becomes even worse when homes are built or renovated according to outdated building codes that do not meet current safety standards. A residential designer from Altadena, Steve Lamb, explained that many homes remodeled in the last decade are not up to the latest fire safety standards, making them more expensive to rebuild after a fire.
Another issue is that some homeowners cancel their insurance after their mortgage is paid off. According to LendingTree, 10.5% of homeowners in California are uninsured. This may sound surprising, but in California, homeowners insurance is not legally required, and many people drop their policies once they own their homes outright.
The Growing Challenge of Getting Insurance: The situation is not improving for homeowners in California. Insurance companies like State Farm and Allstate are making it harder for people to get coverage, especially in areas prone to wildfires. These companies have raised their rates and even stopped offering new policies in some areas due to the rising cost of rebuilding and the increasing risk of natural disasters.
State Farm, for example, has stopped writing new policies for homeowners in California. In fact, the company plans to drop more than 1 million policies in the next five years because of financial concerns. Allstate, California’s fourth-largest insurer, has also limited the number of policies it offers.
As a result, many homeowners are turning to California’s FAIR Plan, a state-backed insurance program for people who can’t get coverage from regular insurance companies. However, the FAIR Plan is facing its own problems. It has grown by more than 160% since 2019, and its president, Victoria Roach, warned that the plan is at risk of financial collapse. She said that the FAIR Plan is “one event away from a large assessment,” meaning they might not have enough funds to cover all claims if a disaster strikes.
The Importance of Being Properly Insured: Being underinsured can have serious financial consequences. If your home is damaged or destroyed, and your insurance policy doesn’t cover the full cost of rebuilding, you will have to pay the difference out of pocket. This can leave homeowners struggling to recover and rebuild their lives.
It’s important for homeowners to review their insurance policies regularly to ensure they have enough coverage. Experts suggest choosing policies based on the replacement cost of the home, rather than the market value, to make sure you’re covered in case of major damage. Homeowners should also consider the costs of rebuilding according to current building codes, as these can be higher than expected.
Conclusion: The state of California’s property insurance market is in crisis, with many homeowners struggling to find or afford coverage. The number of underinsured homeowners is rising, leaving many at risk of significant financial loss if their homes are damaged. It’s more important than ever for homeowners to review their insurance policies and ensure they have the coverage they need to rebuild in the event of a disaster.
(Source: pasadenanow.com)
