In California, it has long been the law that it is up to the homeowner to decide how much insurance she needs, and that if a homeowner is uninsured, it is her fault. This is the law despite the fact that insurance companies set the amount of insurance offered in a policy and do not inform insureds that they have not just the right, but the responsibility, to confirm that the amount is adequate if they need to rebuild. As a result, most homeowners who find themselves needing to rebuild lack the funds to do so.
The California Department of Insurance is aware of the problem and created regulations to address the issue. Since 2010, there has been an insurance regulation in California requiring that insurers take steps to provide accurate replacement cost estimates for homeowner insurance. This regulation, 10 CCR Section 2695.183, was tied up in California courts for seven years as the insurance lobby fought against it. In January 2017, the California Supreme Court ruled that the regulation was valid.
What does Section 2695.183 say? First, the insurance company or agent does not have to provide an insured with an estimate of replacement value, or provide a suggested amount of insurance. If the insurer chooses to do so, then the estimate must include certain elements. It must include the cost of labor, materials and supplies. It must include overhead and profit. It must include the cost of debris removal. It must include the cost of permits and architect plans. It must consider and include the specific features of the home to be rebuilt. That includes the type of foundation, the type of frame, the roof, the siding, any issues relating to slope, the square footage, the geographic area, the age of the structure, and the materials used in the interior and the finishes.