While California is known for its nearly perfect weather, natural disasters still occur. In fact, some homes may be located in hazard areas for flood, fire, and/or other disasters. As a result, insurance options may be limited and/or costly. In recent years, California has seen an exodus of big name insurance companies leaving homeowners uninsured, left with only basic coverage, or paying costly premiums. The primary driver of the exodus has been wildfires. This has left some homeowners with high premiums and/or limited coverage, and created challenges for home buyers.
When financing a home the lender will want to ensure the asset is properly insured. This means that you’ll need to obtain homeowner’s insurance and provide proof in order to close escrow. Thinking ahead about obtaining homeowner’s insurance on a property of interest can help avoid surprises or delays in the escrow process. In addition, working with a realtor that is familiar with areas of interest can help you avoid homes in areas that may have limited insurance options.
As you prepare to navigate the home buying process, your realtor should set you up for success. This entails having conversations about needs, budgets, expectations, and any other obstacles you may face together during the process. As your trusted Bay Area Realtor, I am here to provide valuable information about homeowner’s insurance in California, and what it can mean for home buyers. Read on to educate yourself. I am not a homeowner’s insurance expert. You will have questions I can’t answer. Nonetheless, I am just a phone call or email away and am happy to connect you with insurance experts who can offer personalized answers to your question.
Types of Homeowners Insurance Coverage in California
Before setting out to find the right home, investing time learning about types of homeowners insurance can help you prepare. When it comes time to sign up for a policy, you’ll likely be in escrow facing several decisions and an overload of information at once.
Before committing to a policy, it’s important to review the coverage, as some policies exclude coverage for floods, earthquakes, and other disasters. Typically in California, earthquake insurance is a separate coverage that can be added to a homeowners insurance policy.
In California, homeowners should also be familiar with the California FAIR plan. In areas zoned as a high risk, homeowners can access the California FAIR Plan for basic coverage - emphasis on the basic. While the California FAIR Plan can help ensure that homeowners are not left uncovered, it’s not a comprehensive insurance plan. This can be a deal breaker in some areas if this is all that is available.
Within a traditional homeowners insurance policy, the following coverages are broken down with designated limits.
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Dwelling Coverage (Coverage A): This coverage covers major property that protects your house and attached structures if damaged by a peril.
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Other Structures Coverage (Coverage B): Other structures attached to the dwelling, such as a garage or shed, can be covered under Coverage B. It’s standard for Coverage B to be limited to 10% of Coverage A, but additional coverage may be available.
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Personal Property Coverage (Coverage C): This coverage protects belongings within the home owned by you or family members that reside in the home.
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Loss of Use Coverage (Coverage D): If your home is damaged by a peril leaving you displaced, Coverage D can provide funds for housing, meals, storage, and more.
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Personal Liability Coverage (Coverage E): This coverage protects you in the event you or a reticent of your household are held legally responsible for injury to others.
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Medical Payments to Others Coverage (Coverage F): This coverage compensates reasonable medical expenses for persons injured on your property in the event of an accident.
Homeowners Insurance Requirements When Purchasing a Home
Home buyers financing a California home will need to obtain homeowner’s insurance as mandated by most mortgage lenders, but not the state of California. Most mortgage lenders enforce the requirement to obtain homeowners insurance as a way to protect their investment. Listed in the requirements can be acceptable coverage limits to ensure that you have enough insurance to rebuild in the event your home is lost. If you have a mortgage on your home, and it burns down as the result of a natural wildfire, you’ll still be responsible for your mortgage obligation. Homeowners insurance is an insurance vehicle to protect the lender and the homeowner, as we strive to ensure our family has a roof over their head.
Key Factors Impacting Homeowners Insurance in California
Below, we’ve summarized a few key factors that can impact the cost and availability of homeowners insurance in California.
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Location: The exact location of your home can influence coverage availability and premium. If the location has a high crime rate or a history of disasters such as fire, this can drive up premiums and limit the number of providers willing to provide coverage. In addition, the location of the home can impact the cost to repair or rebuild; this too can influence premiums and options. While you’ll need to explore specific options based on address, your realtor can advise on areas that may be less prone to insurance challenges, or prepare you for what to expect.
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Claim history: Claim history can be considered for previous and current address can be considered as part of the rate evaluation.
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Age of the home: Older homes may be more prone to issues such as plumbing, electrical, and so forth. As a result, premiums may be quoted higher.
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Natural Hazard Disclosure: Part of escrow disclosures include a Natural Hazard Disclosure that highlights six key hazard zones: Very High Fire Hazard Zone, Special Flood Hazard Area, Dam Inundation Zone, Wildland Fire Area, Earthquake Fault Zone, and Seismic Hazard Area. If a home is located in one of these zones it can impact insurance availability and premiums.
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Distance from water: Homes in high risk flood zones may need additional insurance.
The Impact of Natural Disasters on Homeowner's Insurance in California
California’s history includes devastating natural disasters mostly in the category of earthquake and fire. As we have seen a rising number of disasters and face inflation, California has seen an exodus of insurance companies. Some companies no longer issuing new policies, and some policies cancelling coverage in the state of California all together. In an effort to protect California homeowners, the state has created a supplemental homeowners insurance policy, the California FAIR Plan, and acted on moratoriums on insurance carriers during a state of emergency. The state of California continues to seek ways to mitigate risks to encourage insurance providers to provide coverage.
Challenges in California's Insurance Market
In California, 20% to 30% of homes have high fire exposure risk. With an increased chance of home damage or loss as the result of a wildfire, insurance premiums have understandably increased. On top of the high fire risk, the average home price is approaching $900,000 creating economic infeasibility for providers. In recent years we have seen a handful of some of the largest carriers aggressively reduce the number of new customers in California, some even completely denying new customers all together. While insurance seems to be a necessity, insurance companies are for profit at the end of the day. Therefore, they must find ways to provide services demanded by customers while upholding profits. California is a highly desirable place to live, giving plenty of us hope that insurance companies will continue to find solutions in partnership with local governments to ensure homeowners can obtain the coverage they need.
How to Navigate the California Homeowners Insurance Market
The home buying process is not one that welcomes surprises. To best navigate the California homeowners insurance market in parallel with purchasing a new home, an experienced realtor is your best investment. As your trusted Bay Area Realtor here are some ways I can help you navigate the California homeowners insurance market.
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Geographic expertise: As a local native and well-connected real estate professional, I can help you find the best location based on your needs and budget, while also considering factors such as insurance requirements. As a result, you can save time searching for your new home, avoid surprises, and keep insurance costs down.
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Referrals: As a well-connected real estate professional, I can provide referrals to trusted professionals that can help with insurance needs. Even if you’re not in the market for a home, I am always happy to connect and provide assistance when possible.
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Natural Hazard Disclosure: During the escrow process, I can review a property’s Natural Hazard Disclosure in detail to discuss any potential concerns. Concerns can include current or future state insurance options, and beyond.
Questions? Reach out to Darlene Perry today to seamlessly overcome home buying challenges!
