In recent years, many states in the western U.S. have been ravaged by widespread, destructive wildfires. Unfortunately, the trend is expected to continue, largely due to persistent droughts related to climate change. These fires have devastated many families who lost their homes and all of their possessions other than what they grabbed when fleeing from the fire. Alarmingly, fires are occurring not just in remote wilderness areas but in “exurbs” – areas just outside of a major city’s suburbs that are not “rural.” In other words, places that may look just like the community where you live. In addition to wildfires, your home may be at risk of experiencing a variety of other natural disasters ranging from hail, flooding, tornadoes, etc.
While we often can’t prevent these natural disasters, we can take steps to cover the financial cost of losing a home and its contents. It is important to recognize that as home prices increase, rather dramatically in some places, the cost of replacing those homes also increases. However, homeowner’s insurance does not automatically keep up with rising home valuations, and many people do not realize they are underinsured. According to United Policyholders, a nonprofit consumer-advocacy group, roughly two-thirds of fire victims are underinsured. Below, we outline three steps to take to make sure you have the protection you need:
1. Conduct an annual Insurance Review.
Similar to scheduling an annual physical with your doctor, put it on your calendar to have a “checkup” with your insurance agent every year, to make sure your insurance reflects the value of your home and its contents. To determine your home’s approximate market value, you can use websites such as Zillow or Redfin. Or, do a Google search of recent home sales in your zip code and find a few similar to yours. Divide the sale price of each home by its square footage, then compute the average value per square foot. Multiply that average by the square footage of your home to get a rough estimate. Newer building codes in your area, along with the spike in demand for construction materials and labor, can also drive up prices substantially.
If you have high-end appliances, finishes, and furnishings, bump up the result by 10%-20%. Keep in mind that homeowner’s insurance does not cover the value of the land, so you need to adjust for that – note that this is highly dependent on the area where you live. If you know a real estate agent in the area, ask for their input on this. You may also want to consider Replacement Cost Insurance so that you don't have to prove what you paid for items in your home or deal with the depreciated values. Note how this differs from Replacement Value, where you get the “used, as is” price for your belongings as though you were selling them on eBay or Facebook marketplace.
Remember – if you are underinsured and lose your home in a fire, you may not be able to rebuild what you lost. Consider a homeowner whose policy covers only 80% of the value of a home loss to fire. The insurance payout is not enough to replace the home, but the homeowner must still pay the mortgage. Insurance companies tend to offer higher payouts to homeowners who plan to rebuild rather than taking the money and selling the land.
Homeowner’s insurance can be expensive, but as recent events have shown, it is dangerous to think you can remain underinsured because “this won’t happen to me.” If you can afford to cover a bigger portion of a loss, consider increasing the deductible to lower the cost of your insurance. Lastly, you may also want to discuss a Road & Residence Rider so that you only have one deductible if your car(s) are also affected.
2. Take photos and videos.
If disaster strikes, the more evidence you have about the value of what was lost, the better off you will be. Take photos and videos of
The outside of your house, including your garage, storage shed, solar panels, furniture, hot tub, pool, A/C compressor, grills, etc.
Each room, including the basement, if you have one. Be sure to include your washer/dryer, kitchen appliances, and that extra refrigerator in the garage.
Valuables, including:
Jewelry
Art
Antiques
Collections – especially those that have more than sentimental value
Silver and high-end sets of china
Electronics – computers, flat-screen TVs, etc.
Sporting equipment – may be an expensive mountain bike, the contents of a fishing tackle box, and so on.
Store these photos in the Cloud (iCloud, Google Drive, or Dropbox) and consider sharing the password with a trusted relative or friend. If you lose your home to fire, you may be emotionally devastated and not recall a password.
3. Get your documents in order.
A fireproof safe is essential but may be difficult to locate quickly under the rubble of a home destroyed by fire. Additionally, fireproof safes may offer protection in standard home fires, but in an urban wildfire setting, the temperatures can be beyond the capacity of at-home safes. Papers and jewelry, for example, can be reduced to ash. Given the ease with which we can store documents electronically in the Cloud, it is well worth paying a few dollars per month for extra Cloud storage space if you need it.
Scan and upload necessary documents, including property deeds, insurance policies, birth certificates, passport information, car titles, and professional appraisals of any works of art, jewelry, or collections in the home.
If you have improved your home in the past year, document them in a spreadsheet and update your insurance agent. Take photos of the receipts showing what you paid contractors and suppliers (bonus: this will also help establish a higher cost basis for your home when you decide to sell it).
Keep the originals in a folder in a fireproof safe, and be sure you know the combination!
Record crucial medical information – make a list of your prescriptions and take a photo of it. Ensure your doctor has your health care proxy/medical directive on file.
If you have to evacuate and still have time after making sure your loved ones and pets are ready to go, get the folder of essential documents from your safe, grab your passport, your most recent tax return, and your estate planning documents, as well as your computer and charger. Assuming your driver’s license and credit cards are in your wallet, be sure you have your wallet in hand when you evacuate. If you are comfortable using online banking from a computer or mobile device, you will access your accounts once you are in a safe location.
We fervently hope that no fire or other natural disaster ever threatens your home. However, if it happens, knowing that you are financially protected can be a tremendous help to you and your family in dealing with the trauma and putting your lives back together. We recommend the "Get Prepared" tab on the United Policyholder website for additional reading on this topic. Reach out to your Gold Medal Waters advisor with any questions.
