When a homeowner obtains insurance, she generally assumes the insurance company will accurately estimate the cost of rebuilding the home in the event of a disaster such a fire. Unfortunately, this is not often the case. Insurance companies rely on computer programs to generate an estimated cost to rebuild in an area. Some insurance companies will calculate the amount based solely on the square footage and age of the home. If an appraiser is not sent out when insurance is requested to inspect the home, upgrades such as vaulted ceilings, wood beams, updated kitchens and baths, hardwood floors, outdoor kitchens, finished basements or attics, or other enhancements will not be included in the amount allotted to rebuild your home.
Courts often decline to reform the insurance policy to fix errors in the estimated replacement cost, noting that the homeowner should have reviewed and contested the amount when she received the policy. Insurance policies often have extended policy limits that will add an additional 25% on the insured amount for just these situations. However, an additional 25% may not be enough to rebuild.
The West Coast is an especially high cost of living area, and that includes construction costs. The San Francisco Bay Area, for example, is currently the most expensive area of the country for new construction, with construction costing an average of $417/sq ft. Construction costs in California have been rising 5-6.3% per year. This is especially true in areas at high risk of wildfires. While many of those areas are more rural and populated with homes that are less expensive than those in major cities, the repeated years of fires and construction have affected the cost of construction in those areas. It routinely costs $300-$350/sq ft to rebuild in rural wildfire areas. Years of fires have created a huge demand for construction labor, and chronic shortages of materials. County offices are also overwhelmed with permit requests. Delays have increased to the point that the California Department of Insurance has mandated that for wildfire disasters, the time provided by insurance companies to rebuild and to pay Additional Living Expenses be extended from 24 to 36 months.
Additional Living Expenses, the amount the insurance company will pay to feed and house your family while your home is rebuilt, is another area of your policy to review carefully. Some have a year limit. Some have a dollar amount, and some have both. Dollar amounts can be exhausted well before the time limit runs. Short term housing is expensive, especially in disaster-prone areas where housing in general is in short supply, where rental homes are already taken by the families harmed in the prior year’s fires, and where thousands of new families may need temporary housing at once. Families in wildfire areas in California are finding that it costs upwards of $4,000 a month for the insurance company to house their family. That is almost $100,000 in two years just on the home rental, and there is no guarantee the home will be rebuilt in that time period. If the insurance company’s Additional Living Expense allocation runs out before the home is rebuilt, families can find themselves having to pay for rent and their mortgage at the same time.
In short, review your policies. Ensure that your insurance company sends someone to inspect your home before insuring it, and if you believe the amount is too low, call them and ask for more. Look at your square footage and multiply it by $350. If your coverage is considerably lower, consider increasing it. Yes, it means that you will pay a small amount more in your premium. But in the event of a disaster, that small additional amount could add hundreds of thousands of dollars to your funds to rebuild.
If the unthinkable happens and you find yourself in a situation as dire as having your home destroyed by fire, Kantor & Kantor is here to assist you as you navigate this complicated time. For a free consultation, please call 888-569-6013 or use our online contact form.