At its core, an insurance cover is a promise that someone else has your back when the unexpected happens. Considering that most perils can destroy properties at a moment’s notice, taking an insurance cover is the best financial decision you can make.
As a homeowner in California, there are many insurance covers to go with. But unlike most agents would make you believe, you don’t need every home insurance policy in the market. Essentially, the type and amount of insurance coverage to purchase is dependent on specific factors such as your zip code, the probability of risk and your lifestyle.
However, there are five types of home insurance coverages that most financial experts agree are a must-have if you own a home in the Golden State:
● HO-3 homeowners insurance
● Wildfire insurance
● Earthquake insurance
● Flood insurance
● Jewelry insurance
Unlike auto insurance, you’re not mandated by the law to have these home insurance coverages. But they will go a long way in buffering you from dire financial difficulties when disaster strikes.
5 Types of Insurance Policies Every Homeowner in California Needs
Homeowners Insurance
When protecting your home, homeowners insurance (HOI) should be at the top of your policy portfolio. Homeowners insurance is a policy that insures private residences against losses and damages.
There are eight forms of home insurance policies usually categorized as HO-1 through HO-8. These packages differ in what they cover and the type of home they are written for. Understanding what each package entails when deciding between these types of homeowners insurance is crucial so you don’t over insure or under insure your property.
HO-3 is, by and large, the most popular form of home insurance. This type of home insurance covers your house and other structures on an open-peril basis. It provides coverage against all types of losses except those specifically excluded from the policy. HO-3 also protects your personal property but on a named-peril arrangement, meaning it only covers losses specifically named on the policy.
HO-3 will also pay for additional living expenses if a covered loss forces you to seek temporary accommodation elsewhere. Additionally, it covers legal and medical expenses when someone else is hurt, or their property is damaged at your home.
Wildfire Insurance
Your homeowners insurance policy will typically cover loss and damage caused by fire, including wildfire. In case of a wild inferno, your insurance will foot the cost of rebuilding or repairing your house and outbuildings, for instance, a garage. The home insurance policy will also protect your property from loss and damage and also reimburse hotel living costs in case the fire has rendered your home uninhabitable.
Unfortunately, as wildfires become more frequent and more destructive, some insurance companies are now declining to provide covers in high-risk codes. If you live in these fire-prone swaths of California, ask your provider whether the home insurance covers wildfire damage. Importantly, ensure you understand what is covered and what is not to prevent last-minute surprises.
Also, enquire from a contractor or realtor how much it would take to rebuild your home. Use the figures to calculate how much coverage is enough to ensure your property is fully covered.
If your current home insurance plan doesn’t cover wildfire damage and loss, ask your provider whether it’s possible to add it. If several insurers decline your request, your last resort may be your state’s FAIR plan policy. FAIR, which stands for Fair Access to Insurance Requirements, is a state-mandated program that enables people in high-risk areas to get coverage when typical insurance companies don’t.
Earthquake Insurance
In addition to wildfires, California is also among the most earthquake-prone states in the US. According to the United States Geological Survey (USGS), Southern California experiences around 10,000 earthquakes annually.
As a whole, California experiences over 100 earthquakes daily. Although most of these are teeny tiny tremors that are hardly felt by most people, significantly strong quakes are regular and can occur at any time. The last major earthquake in California was in July 2019. The 7.1 magnitude quake caused over $1 billion in structural damage, fires and injuries.
Earthquake insurance is typically not included in homeowners insurance, but most providers have an option to purchase it as a separate policy. The premiums usually range between $800 and $5000 annually, while the deductibles can be 10%-15% of your home’s value.
Flood Insurance
Floods are another natural disaster that homeowners in California need to stay prepared for. The California Department of Water Resources says that the risk of flooding is a major issue across all counties.
Atmospheric rivers are the primary culprits in California’s flooding problem. These are long, narrow ‘rivers’ that carry water vapor across the sky. When they make landfall, atmospheric rivers are a blessing in that they fill the state’s reservoirs. Unfortunately, they also cause massive floods and mudslides, which almost always cause over $1 billion in damages.
Flood damages are not included in a standard homeowners insurance coverage. But you may be able to buy flood insurance separately either through the NFIP program or from a private insurer.
Flood insurance provides coverage to electrical and plumbing systems, built-in appliances, foundation walls, water heaters and furnaces. It also pays for damages to contents, such as washers, dryers, furniture, artwork, clothing and curtains.
However, note that flood insurance doesn’t cover damages caused to swimming pools, landscaping, currency, decks and valuable papers.
Jewelry Insurance
Yes, homeowners insurance policies typically cover jewelry losses due to covered risks, such as vandalism, theft and fire.
But because jewelry and valuable items, such as watches, are massive thief magnets, payouts are often capped at about $1500. That’s to say that you are less likely to be compensated the full amount if your $20,000 engagement ring gets stolen.
There are two ways of increasing your coverage for expensive objects. The first option is to increase your liability limit to, let’s say, $3000. But even after paying extra, the payout will still be a far cry from your out-of-pocket cost.
The second option would be to purchase what’s known as a rider or floater. This type of jewelry insurance supplements your standard homeowners insurance coverage.
A floater will cost you more than simply bumping up your limits with a traditional home insurance policy. But on the positive side, your hard-to-replace valuables are covered from risks not included in your standard home insurance cover, regardless of where they are.
