Understanding Insurance Amidst the LA Wildfires

The recent wildfires devastating Los Angeles have left a trail of destruction, with over 50,000 acres scorched, more than 10,000 homes and buildings damaged or destroyed, and thousands of families displaced. The flames, fueled by dry conditions and strong winds, have ravaged communities, turning entire neighborhoods into ash and leaving thousands grappling with loss and uncertainty. The economic toll is staggering, with damages estimated in the billions, underscoring the critical importance of adequate insurance coverage.

For many homeowners, these wildfires highlight the urgency of reviewing insurance policies – particularly homeowners insurance – to ensure risks are adequately covered. Unfortunately, coverage gaps often come to light only after disaster strikes, leading to devastating financial hardships for policyholders. That is why conducting a thorough policy review at least annually is vital and here are five key aspects to examine in your insurance coverage to avoid unexpected vulnerabilities.

Why Reviewing Your Insurance is Vital Wildfires present unique challenges for homeowners. With rising costs of construction and temporary living arrangements, underinsured properties can leave families financially devastated. Policies that seemed sufficient when purchased may no longer meet the realities of today’s risks. To avoid unexpected expenses, it’s crucial to verify that your policy aligns with your needs.

Five Key Elements to Examine in Your Homeowners Insurance Policy

1. Coverage Limits for Dwelling Protection
   • Where to Find It: This information is typically listed under the "Coverage A: Dwelling" section of your policy.
   • What to Look For: Ensure the amount covers the full cost of rebuilding your home, not just its market value. Construction costs often exceed market values, especially in high-demand post-disaster scenarios.
   • Deciphering the Legalese: Phrases like “actual cash value” (ACV) mean the policy accounts for depreciation, which could result in insufficient funds. Look for policies offering “replacement cost” or “guaranteed replacement cost” coverage.
2. Additional Living Expenses (ALE)
   • Where to Find It: This is usually outlined in the "Loss of Use" section.
   • What to Look For: Verify the maximum coverage amount and duration of benefits. ALE covers temporary housing, food, and other expenses if your home becomes uninhabitable.
   • Deciphering the Legalese: Check terms like “reasonable living expenses.” Policies often have caps or time limits, so ensure the coverage is sufficient for prolonged displacement.
3. Coverage for Detached Structures
   • Where to Find It: Look under "Coverage B: Other Structures."
   • What to Look For: This section covers structures like garages, sheds, and fences. Confirm the coverage percentage (usually 10% of dwelling coverage) is adequate for replacement.
   • Deciphering the Legalese: Terms like “appurtenant structures” refer to detached buildings. Ensure there are no exclusions for fire-related damages.
4. Exclusions and Endorsements
   • Where to Find It: Review the "Exclusions" and "Endorsements" sections carefully.
   • What to Look For: Standard policies may exclude wildfire damage in high-risk areas or require separate endorsements. If wildfires are excluded, you'll need additional coverage.
   • Deciphering the Legalese: Words like "excluded perils" signal areas where you're not covered. Endorsements, often listed as "riders," can amend or extend coverage.
5. Personal Property Protections
   • Where to Find It: This is detailed in "Coverage C: Personal Property."
   • What to Look For: Ensure that the value of your belongings is accurately reflected. Policies may have limits on high-value items like jewelry or electronics.
   • Deciphering the Legalese: Look for “replacement cost coverage” instead of ACV. The latter may pay only a depreciated amount, leaving you with out-of- pocket expenses.

Tips for Understanding Policy Language Insurance policies are infamous for their dense and complex language. To navigate the legalese:

• Use the policy’s glossary to define unfamiliar terms.
• Contact your insurance agent for clarifications.
• Compare your policy with online guides to ensure alignment with industry standards.

Taking Action Now

The devastating fires in Los Angeles serve as a sobering reminder to act proactively. Start by pulling out your policy documents and setting aside time to review them in detail.

If you find gaps, consult with your advisor to update or supplement your coverage.

"Understanding Insurance Amidst the LA Wildfires." FMeX. 2025.