A home that is ‘insured’ may not carry enough insurance to rebuild to previous specifications. A home owned by a trust may not be covered if not listed as a ‘named insured’.
The Peril
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High Fire Hazard Severity Zone
The city of San Diego has identified very high fire hazard severity zones within city limits and mapped these zones. Hazard is based on physical conditions that create a likelihood that an area will burn over a 30 to 50-year period. These zones cover roughly 70% of the city. In the most fire-prone areas, there is roughly a 50% to 81% chance of wildfire over the next thirty years.[i] Large swathes of unincorporated land in San Diego County under the purview of the State of California are likewise highly likely to be subject to a wildfire over the next thirty years.
Replacement Costs
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Required vs. Sufficient
Homeowners who are not covered for 80% of the value of the replacement cost of their home, in the event of a claim, will have their payout reduced based on the proportion of coverage held relative to the required 80%.
For example, a homeowner carrying only 60% coverage of the replacement cost of their home would only receive a payout of $750,000 on a $1million claim.
Estimated Replacement Cost vs. Actual Cost to Replace
Your insurer may provide guidance on estimating replacement costs, however these may severely underestimate the actual cost to rebuild your home to its previous specifications. The cost to rebuild can vary tremendously depending on the quality of materials, the complexity of the design, and the economic climate.
Code Upgrade Coverage
Also known as ‘ordinance or law coverage’, is an optional add-on to a homeowner's insurance policy. It helps cover the cost of bringing a damaged home up to current building codes. Rebuilding your home as it was might not be possible because building codes have changed and those changes will cost you more money and may not be factored into estimates of a home’s ‘replacement cost’.
Trust as ‘Named Insured’
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The Importance of Updating Your Policy
When your home is owned by a trust, your homeowners insurance policy should reflect this ownership to ensure comprehensive protection. This often involves adding the trust as an “additional insured” on your policy. By doing so, both you and the trust are covered for property damage and liability claims. Failing to update your policy can result in significant coverage gaps, leaving the trust exposed to potential risks.[i]
[i] https://www.10news.com/news/local-news/32-of-homes-permitted-between-2021-and-2023-in-san-diego-are-in-very-high-fire-hazard-severity-zones
[ii] https://elderlawcalifornia.com/homeowners-insurance-and-your-trust/#:~:text=When%20your%20home%20is%20owned,property%20damage%20and%20liability%20claims