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An insurance update from Gary Anderson:

With the recent rash of natural disasters throughout the country, if you are one of the fortunate ones that were not directly affected, now would be a good time to fully review your homeowners insurance coverages.

If you are like most people, you insure your dwelling to its replacement value and purchase liability limits that are meant to protect your monetary assets. Hopefully you are also purchasing an umbrella policy that provides an additional limit of personal liability protection. Coverages most often overlooked in a homeowners policy and are of great concern with the recent wild fires and hurricanes are “loss of use and building ordinance coverage.” Most carriers provide sub-limits for these coverages based on a percentage of the dwelling value, generally ranging from 10% to 25%. If your home was damaged or destroyed in the recent fires in the California wine country, you could be in for a horrible shock.

Building codes differ from city to city and county to county. In the state of California, all new single family and duplex buildings are required to include a full sprinkler system. This greatly increases the cost of repair or reconstruction. In brush areas, you will be required to replace the roof with non combustible materials, which are also much more expensive than wood shake. Are your “ordinance & law” coverages adequate to handle these costs?

Loss of use coverage is also generally provided with a sub limit that is often 10% of the building value. This provides you with a monetary limit to continue living day to day until your home is replaced. With over 1,500 buildings destroyed in the fires, there aren’t enough rental options or general contractors to go around. As human nature would have it, the cost of rentals has also increased due to supply and demand. If your home was valued at $500,000 and you have loss of use at 25%, your limit would be $125,000. Based on the unfortunate truth that you will probably be out of your home for possibly a year and a half, your limit of $125,000 probably wouldn’t go too far. Consider the cost of living in a motel and eating three meals a day at a restaurant. $125,000 in coverage would be painfully inadequate.