Wildfires and Home Insurance

In recent years, wildfires have dominated the news. We’ve watched on TV while people evacuated their homes, taking with them just what fit in their cars. In the aftermath, we’ve read in newspapers about huge insurance payouts and how communities have started to recover.

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      Do you live in a state with wildfires?

      Maybe you’ve wondered if it happened to you, could you rebuild? Would your home or renters insurance include enough wildfire insurance, and where would you live in the meantime? To minimize their risk, can insurers raise rates or even deny coverage after a major wildfire? (Short answer: yes.) If you’re concerned, read on to find out the ins and outs of home fire insurance, also called hazard insurance.

      Wildfires and homeowners insurance: what’s covered?

      Home fire insurance isn’t a specific policy you buy like flood insurance or earthquake insurance. Most homeowners insurance policies include fire damage coverage, also called hazard insurance. The hazard insurance portion of your policy typically covers the following in a fire:

      • Damage to your home and belongings
      • Damage to outbuildings such as garages and sheds
      • Living expenses if your home is uninhabitable
      • Landscaping

      If you live in a high-risk area, consider purchasing extra wildfire insurance coverage. Advocacy group United Policyholders estimated that two-thirds of residents in California don’t have enough coverage for wildfires. Talk to your provider to find out how much coverage you have.

      After a wildfire, home insurance covers this much:

      Homeowners policies pay to repay or build your house if it’s damaged in a fire. They’ll pay out up to the coverage limit you choose when selecting your policy. When shopping for home insurance with wildfire insurance, pick a limit high enough to cover the full replacement cost of your home.

      To help you know if you have enough coverage, check your policy for the detached structures, personal belongings coverage, your deductible, living expenses and cash value vs. replacement value.

      Detached structures

      Homeowners insurance will also cover detached structures on your property, like a garage or a shed, but that coverage could be limited to 10% of the insurance you have on your primary dwelling.

      Personal belongings

      Personal belongings include clothing, furniture and other personal items that are damaged in a wildfire or another covered peril. Insurance generally limits payouts on these items to 50-70 percent of the total dwelling coverage. For expensive items such as jewelry or collectibles, you might want to buy a rider that provides additional protection.

      It’s a good idea to inventory your belongings and take pictures of particularly valuable items in case you need to file a claim. Keep those records someplace safe, away from your main dwelling or accessible online. Proving that you owned the things you’re claiming will speed up the claims process.

      Deductible

      Deductibles represent the out-of-pocket costs you pay before insurance coverage kicks in. Choosing a higher deductible lowers your monthly premiums, but don’t pick a deductible that you couldn’t comfortably pay.

      Actual cash value vs. replacement cost

      Your home is probably full of items you bought several years ago, from a television to the living room sectional. Many, if not all, of these items have depreciated in value. Their actual cash value is lower than the cost to replace them with a new item. Some insurance policies will only pay out the current actual cash value of the destroyed or damaged item. That may not be enough to buy a replacement.

      Consider choosing a policy with replacement value coverage. While the premiums will be higher, the policy would payout enough to buy a new television at current market prices. If you live in an area prone to wildfires, paying for the extra coverage helps you truly rebuild your life.

      Living expenses and wildfire coverage

      If you can’t live in your home while it’s being repaired, additional living expenses coverage pays for an apartment or hotel room and meals. This coverage can be particularly helpful in case of a wildfire. Your policy will define the reimbursement amount and likely set a time limit on how
      long you can receive benefits.

      [Read: How to Switch Home Insurance Carriers]

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      Can insurance companies deny me coverage after a wildfire?

      Wildfires used to occur rarely, so insurers didn’t exempt them from coverage. But with cities expanding and more homes built — and rebuilt — in high-risk areas, wildfires that affect homes have become more common. There have been rumblings that insurers would start to lump them in with floods, hurricanes and other natural disasters, which most standard homeowners insurance policies exclude.

      For now, you may pay higher premiums, but you should still be able to find a carrier willing to cover your home.

      What are my alternatives if traditional insurers deny me coverage?

      If you’re denied insurance in California, you can purchase fire-related coverage through the Fair Access to Insurance Plan.

      You also have two other options for policies that include wildfire insurance you can explore:

      • Surplus lines insurance carriers: This is a specialized type of insurance designed to cover high-risk scenarios. The issue is that surplus insurers may not be licensed in your state. As they take on a bigger risk in insuring you, you take on a more significant risk in choosing them. Make sure to read the company’s reviews and check their financial strength rating before you buy a policy.
      • Premier insurance carriers: If you have a high-value home (usually over $1 million), you may be able to get coverage from a premier insurance carrier. This coverage usually comes with additional perks like high limits and private firefighters.

      [Read: The Complete Guide to Homeowners Insurance]

      Top states affected by wildfires

      Here are the top states the Insurance Information Institute (III) lists with high to extreme wildfire risk, and their wildfire seasons.

      State
      Season
      CaliforniaMid-summer to early fall
      TexasEarly spring to late spring
      NevadaMid-summer to early fall
      WashingtonEarly spring to mid-fall
      KansasMid-spring to early fall

      California ranks at the top of the list, with 8,194 fires burning a total of 259,148 acres in 2019. Last year, Texas saw 6,892 fires burn 215,493 acres.

      Fire damage in California was much worse than the other states due to the fire’s proximity to developed areas. All of the top 10 costliest wildfires the U.S. have occurred have originated in the state. Unsurprisingly, local homeowners report that getting home insurance in California is getting more challenging.

      While some states have more wildfire risk, any state can experience fires and the damage that comes from them. To protect yourself from the financial problems of fire damage, you should know what coverage you have.

      How to prepare for wildfire losses

      To protect your home, it’s important to take some steps before the wildfire season.

      • Create defensible space around your home: A defensible space is essentially a zone around your house from which you clear flammable materials. This way, if there’s a fire in your area, it will have a hard time reaching your house. That includes clearing brush from around your home, cleaning out your gutters, and trimming and thinning trees. Choose fireproof materials: If you’re building or rebuilding your home, choose fireproof materials whenever possible.
      • Review your policy limits: To make sure you’re ready in the event of a fire, review the hazard insurance in your home policy. Check your policy limits to ensure you have enough wildfire insurance to help you rebuild and replace all of your belongings if a fire takes everything.
      • Create a home inventory: By documenting everything you own, you make it much easier to file a claim if it gets destroyed by a fire.

      What are fire protection classes?

      To understand your likelihood of getting the home insurance you need to protect against wildfires, it can be helpful to know your fire protection class. These are designations put forth by the Insurance Services Office (ISO).

      To determine your fire protection class, the ISO looks at:

      • Your local fire department, including how well they’re staffed and equipped
      • Your local water supply system, including your home’s proximity to a hydrant and the likelihood that hydrant will be supplied with enough water to put out a fire
      • Your local fire alarm and communications system

      If your home is in an area with a class 1 ranking, you have top-tier fire protection. Areas that rank with 9s or 10s are usually remote and unserved by a local fire department. Ultimately, the higher your fire protection class, the more risk an insurer will feel like they’re taking on in writing you a home insurance policy.

      And a higher risk means you’ll pay more than the average home insurance cost or, in a worst-case scenario, could be denied coverage entirely.

      Fortunately, there are some things you can do to minimize your fire risk.

      Dena Landon

      Contributing Writer

      Dena draws upon ten years of experience in the banking industry to help borrowers make educated decisions.

      Reviewed by

      • Andrea Perez
        Andrea Perez
        Personal Finance Editor

        Andrea Perez is an editor at The Simple Dollar specializing in personal finance. Prior to that she specialized in digital marketing content for online learning websites. She holds a master’s degree in journalism and media studies from the University of South Florida.