The “American Dream” is really quite simple: Get a good education, get a well-paying job, get married, and buy a house.
For first-time home owners, the excitement associated with acquiring a new home is palpable. However, the excitement is often accompanied by many logistical concerns. Concerns include budget and oftentimes acquiring insurance in the event of a natural disaster. Should a natural disaster take place, it is important for California residents to consider earthquake, and flood insurance and to understand home insurance deductibles.
Good home insurance will allow the homeowner to pay a small deductible and cover a large amount of damage to the home. A homeowners insurance deductible is the amount of money agreed to be paid before insurance is kicked in to repair damages to the home and belongings.
Most home insurance deductibles range from $250 to $5,000. When choosing a deductible for home insurance it is important to keep in mind the budget and what you can pay out of pocket to replace lost items. If companies offer no deductible policies, policies are typically more expensive. Exercise caution when choosing a deductible as a high deductible will cause homeowners insurance to be more affordable but create a financial challenge regarding repairs if filing a claim. A lower deductible will cause the homeowner’s insurance rate to skyrocket.
There are typically two types of deductibles available which are a “fixed deductible” and a “percentage-based deductible.” A fixed deductible allows homeowners to choose the price paid before they’ll cover claim expenses. A percentage-based deductible is often offered for specific types of covered damage. They are especially helpful in the event of wind or hail damage.
However, a separate percentage-based deductible is required instead of a flat amount like with the fixed deductible. Some pros for choosing a percentage-based deductible include the affordability of paying for minor repairs out of pocket while owning an expensive home and saving money on premiums, additionally, if you have a 1-percent deductible, the amount owed would only increase from $1,000 to $1,500 instead of $2,500, which is much more manageable for average homeowners.
Earthquake Insurance
Earthquake insurance is not often financially feasible to many California homeowners nor is it included in traditional homeowners insurance. Annually, earthquakes cause up to $6.1 billion dollars of damage in the U.S. Depending on the size of your home, earthquake insurance, on average, can cost up to $3.54 per thousands of dollars, which is the equivalent of $1,770 for a single-family home. Coverage can range in cost from 10 cents per $1,000 in coverage to up to $15 per $1,000 of coverage. The rate for earthquake coverage depends on proximity of property to a fault line. If the rate is higher, this implies that you are at greater risk for an earthquake, in turn creating a higher cost to protect assets and valuables in your home. Los Angeles is estimated to have a 60% chance of an earthquake accompanied by a magnitude of at least 6.7 in the coming three decades.
The California Earthquake Authority is one of the world’s largest providers of residential earthquake insurance and partners with insurers to assist with earthquake-related risks and losses. There are two policies available for earthquake insurance. One is the Homeowners Choice and the other is Standard Homeowners. Homeowners Choice does not include personal property or loss of use coverage. Standard Homeowners coverage includes dwelling, personal property, loss of use, and emergency repairs, not breakables or exterior masonry veneer. Homeowners Choice includes all but personal property coverage, loss of use, breakables, and exterior masonry veneer.
Flood insurance
It is important to have flood insurance in the event of heavy rain. Earlier this year, California saw an excessive amount of rain due to heavy storms. Many homes were damaged due to mudslides and residents scrambled to find resources to help make repairs. The cost of flood insurance is as high as $909 per year. Government flood insurance is available via the National Flood Insurance Program (NFIP) which is managed by FEMA. Typically NFIP policies are navigated through private insurers. Flood insurance can be purchased based on replacement cost value or actual cost value. There is a 30-day period where homeowners must wait for the policy to take effect.
Most flood insurance covers damage such as structural damage, which includes the home’s foundation, walls, floors, and ceiling. Additionally, it covers content coverage, like personal belongings, furniture, appliances, clothing, and electronics. Electrical and plumbing systems, such as wiring, plumbing, and HVAC systems are covered. Some policies include basement coverage and debris removal after a flood is typically covered. The policy may or may not cover temporary living expenses or relocation costs.
Fire insurance
Fire insurance is difficult to purchase in some parts of California. Because of climate change and “fire season” now basically year-round, California instituted a few years ago the FAIR Plan, sort of a last resort insurance solution for homeowners who are increasingly being denied coverage. It is a pool of insurers required by the state to provide fire-insurance policies when property owners can’t find it elsewhere.
The FAIR Plan is supposed to be a temporary solution and, so far, about 90 percent of current customers are renewing their policies for another year. The California Department of Insurance has proposed new regulations–expected to be finalized at the end of 2024–to try to get insurers to resume writing fire policies in the state. However, it could be a couple of years until that happens, therefore the FAIR Pl;an is likely to continue growing which, in effect, could threaten its solvency because it is taking on additional high-risk policies.
To find a flood insurance provider in California, visit floodsmart.gov. Earthquake insurance: earthquakeauthority.com. Fire insurance: cfpnet.com.