It’s not the most talked-about topic in real estate but it’s one of the most important: insurance.
When you have a loan, you must have homeowners insurance that covers the cost of rebuilding the house in case of an unexpected emergency like an earthquake or a fire. This insurance protects the lender, who doesn’t want to get stuck with a burned-down home they can’t sell, and like I said, it’s required for any homeowner with a home loan.
If, let’s say, you don’t have a lender and you paid in cash for the property, you might get basic California Fair Plan Insurance, which is needed in high-risk areas (e.g. somewhere prone to wild fires). If you live in the “flats,” regular insurance is available for purchase. But in high-risk areas, it’s more difficult to find coverage, so California Fair Plan Insurance is often the best go-to.
Primary homes, second homes, long-term rentals, short-term vacation rentals, condos, townhomes, vacant homes, manufactured/mobile homes and commercial buildings are all eligible for Fair Plan Insurance.
The Fair Plan covers:
- Fire and wildfire
- Lightning
- Smoke
- Internal Explosions
- Ordinance or Law
That’s the good news.
So, what’s the not-so-good news? California Fair Plan Insurance only covers a maximum of $3 million, which means it’ll only cover the cost to rebuild the property; it will not cover your personal content, relocation fees to rent another home while rebuilding or fixing the damage. A lot of homeowners with multi-million dollar homes are self-insuring through this California Fair Plan because it’s money saved. For some, the cost of a typical first year of homeowners’ insurance could exceed $100,000 a year for a high-end home in a wildfire-risk area. To determine cost, companies rate an area on a scale of 1-5, with 5 being the highest risk location and 1 being lower risk.
Difficult areas to insure include:
- South of Ventura Blvd.
- Mulholland Corridor
- Topanga
- Malibu
- Santa Barbara/Montecito foothills
- … and any hillside property in close proximity to open space or brush
If you’re going with California Fair Plan Insurance, it’s critical to purchase companion policies to cover the cost of personal content or relocation in the event of a catastrophic disaster.
This final step in the home buying process and it used to be left to the last minute. You call an insurance broker and they respond with a casual hair flip and an, “Oh no problem, just give me a few hours and I’ll put a policy together for you.”
Well, friends, it doesn’t happen that way anymore.
Today, it can take weeks to shop your insurance policy around, and in some insurance markets, you can’t get a secondary bid.
It’s an underground topic that no one is talking about but should be.
I’ve had this issue come up multiple times with clients recently; at one listing, our clients were told the sellers weren’t renewing their policy, and they wanted to make sure they were covered. We had to hurry up and close escrow before there was no insurance on the home!
The estate home marketplace for insurance is getting trickier by the moment, though my contacts in the insurance industry tell me things will open up within the next 12-24 months. Homeowners will have more selection as more companies re-enter the marketplace after enough time has passed following the Woolsey fire in Malibu in 2018 or the Thomas Fire in Santa Barbara in 2017. It’s sad to say but the farther away you get from a tragedy, the more open the insurance market becomes.
Right now, insurance companies aren’t writing policies because they don’t want a market oversaturated with coverage. And that means homeowners are falling back on the increasingly popular basic coverage of the California Fair Plan Insurance then self-insuring for the rest.
Questions? Contact me to schedule a free real estate consultation!