Insurance: Everything You Should Know

Insurance is something we've been talking more and more about over the past few years with the 2020 fires and the 2024 winter storm that brought a lot of trees down. But the terrible disaster in LA has made it feel a little more real. Let's walkthrough the key things to understand about property insurance and some of the learning lessons we're seeing in wake of the LA fires. 

When people talk insurance on their home, they're typically referring to 'homeowners property & casualty insurance'. 

What it typically covers:

Your home and your personal property in your home from damage from things like fire, smoke, wind, and hail. Water damage is often covered if the source of water is from inside your home.

What it sometimes covers:

Temporary housing costs.

What it likely does not cover:

Damage from floods and earthquakes.

How much money will insurance pay out?

Ideally your insurance policy is structured to pay for the cost to replace your home and your personal property. If you do have a policy that covers the cost to replace your home and personal property, there will be a cap on the total amount. Understand that value. We’re hearing stories from LA where many families insurance will cover about half of what a new home will cost to build.

It’s also possible your insurance policy is structured to pay out the remaining amount left on your mortgage (if you have one). This is the minimum policy a lender will allow a homeowner to carry. It will often be the most affordable option for insurance too.

All policies will have a deductible that you will need to pay before insurance kicks in. This is either a set dollar amount, or a percent of your home value.  

What does it cost to build a new home?

Building a new home typically ranges from $200 to $400 per square foot depending on quality and finishes (setting aside land costs and a possible salvageable foundation after a natural disaster). This sets aside land costs and possible savings from a salvageable foundation. Two or three story homes are generally more affordable on a per square foot basis as you’re saving on roof and foundation costs.

Learning lessons from LA

Arm yourself with information. Work with your insurance agent to understand your current policy(s) really well. Find out what your deductible is. Get a quote for full replacement value of your home and contents if that’s not what your policy currently covers. Get a quote for earthquake insurance and/or flood insurance. Once you have all the information about your current picture and what maximum coverage would look like and cost, it’s time for a conversation about how much risk you’re willing to carry for the potential savings in lower insurance.

I’d work with a big quality insurance company that I’m not afraid will go insolvent in a large natural disaster.

The insurance industry is going through rapid change and will continue to change. We’re seeing insurance companies become much pickier in just the past year than we’ve ever seen. Denying providing insurance based on the age of the roof, the roof material, knob and tube wiring, and types of foundations.

Insurance costs will continue to heavily increase. Especially in areas prone to natural disasters.

Rebuilding after a large natural disaster will take a long time. From navigating an insurance payout, completing plans for a new home, a long permitting backlog, and construction timelines for builders that will be in extreme demand, it will take a few years at a minimum.