Fire Insurance Coverage
Home insurance is one of those tedious necessities with its own vocabulary surrounded by agents and salespeople. The good thing is that those salespeople all want you to be as fully covered as possible reducing your chances of coming up short in the event of fire damage. In addition, home mortgage lenders require proof of adequate property insurance as long as the loan is outstanding and often the cost is incorporated into your home payment. Spread out over 12 months, the annual insurance premium is a trifle compared to principal and interest payments.
Nevertheless, it is important to understand some of the vocabulary and to make sure you have good coverage. Situations change — your home value could have appreciated drastically or, in the wake of the sub-prime mortgage crisis in 2008, depreciated drastically; construction costs can go up in areas with significant new development, etc. Look on the following as a sort of primer in property insurance or the basis of questions to ask your agent:
- There are three types of coverage: Replacement cost pays the cost of replacing the property without regard to either depreciation or appreciation; extended replacement cost will pay over the coverage limit if construction costs have increased — generally not more than 20 percent of the limit, and actual cash value, which provides the cost for replacement less depreciation. The last coverage is not a good idea in any scenario.
- The coverage limit is the maximum amount the insurance company will pay. Keep an eye on that limit if homes in your area are appreciating and definitely increase it if you have done upgrading or refurbishing. Your mortgage company will make sure the home is covered for the amount of the loan — it’s your responsibility to make sure it’s covered for its true value.
- Household contents are figured as a percentage of the value of the home — usually about 50 percent. Make sure that percentage will cover your personal property. If you have collectibles or valuable jewelry or art, ask the agent about the availability of specific coverage. There are collectible insurers who cover such odd items as barbed wire or airline air sick bag collections. As long as you know your collection has a value, ask questions. Companies that specialize in home insurance may not cover collectibles or high-value items, but they can steer you in the right direction.
- Property insurance is a multi-peril policy that will include coverage for a variety of risks like fire, smoke, lightning, windstorms, hail, vandalism/theft, etc. Interestingly, some perils in areas where those perils are prevalent are not covered — earthquakes in California, for instance. Make sure you fully understand any exclusions and that all the structures on the property are covered.
- Some insurance policies cover alternative living arrangements if your home is damaged, even through the reconstruction phase. If living in a motel for months would constitute a serious financial hardship, consider including this provision in your policy.
Rural Home Insurance
Finding rural home fire insurance can be difficult, especially in locations where you really need it.
One issue with some rural areas is the simple act of finding someone willing to cover your property. As mentioned on our Wildland Fire pages, some communities are not within fire protection districts. State agencies will respond to wildland fires, but their expertise is in fighting brush fires, not protecting structures. Those communities are identified as Class 10 — basically, the worse case scenario for insurance companies, the bottom of a scale that goes from 1 to 10 — regardless of whether there are hydrants near the home or water sources on the property. You may end up with an urban agent surveying your property with fear in his eyes, getting in his car, speeding up your rural driveway, and not returning your calls.
If this happens, check with the State or County Farm Bureau. You may only have a family orchard, vegetable garden, and pets, but that doesn’t matter. Recognizing the difficulty of rural property insurance, the Farm Bureau may have policies available that will cover you despite the fact you gain no farm income from your property. You’ll have to join the Farm Bureau, but at least they’ll return your calls.
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