As homeowners still grapple with complications from the tragic Los Angeles fires, the topic of fire insurance has taken center stage, especially for those purchasing homes in L.A. It’s important to note that most insurance policies aren’t transferrable, and sellers typically need to purchase new policies. There’s a common misconception that a policy from a previous owner will simply transfer to the new owners, especially if the previous customer had been paying for years. However in reality, when the new owner looks into an insurance policy, the rates are often higher and the insurer may not even ensure the new customer or may not ensure a particular customer due to previous history of homeownership.
As an example, let’s say there’s an all-cash offer where a parent wants to purchase a home for their children. In this scenario, the parent is a homeowner who had two previous homes with major water leaks and damages, and the insurer denies the parent from purchasing the policy. To close the deal, the parent must be taken off the title and the home has to be placed in the kids’ names so the policy can be purchased.
If a house has a long history of problems it might be difficult to get insurance. If the insurer has a history of problems with other houses, it could be an issue too. The big takeaways for those seeking insurance policies? Work closely with your real estate agent and insurance agent. Start the process early.
Right now, the application process for the California Fair Plan Insurance, which covers fire and wildfire, lightning, smoke, internal explosions and ordinance or law, is delayed. (California Fair Plan Insurance is most popular in fire-adjacent areas.) It’s been taking about 30 days for this process, so you can’t delay starting the process while you’re in escrow because you’re never going to make it in time. And remember, when you have a loan, you must have homeowners insurance that covers the cost of rebuilding the house in case of an unexpected emergency. This insurance protects the lender, who doesn’t want to get stuck with a damaged home they can’t sell, and it’s a requirement for any homeowner with a home loan. Additionally, because California Fair Plan Insurance covers up to $3 million for replacement cost and does not include personal content or the cost of temporary housing, many homeowners purchase a wraparound policy to cover personal content and relocation costs.
Often, insurance is a separate contingency in a contract, and people are starting to extend their insurability contingency by three or four weeks to make sure they’ll get insurance. Again, work closely with your agent on timing and make sure you plan ahead so you can have a streamlined, stress-free experience when buying or selling a home.
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Andrew Manning • REALTOR® • Berkshire Hathaway HomeServices California Properties • DRE: 00941825 • 818-380-2147 • andrew@andrewmanning.com