What homeowners need to know about wildfire insurance

More than 4.5 million U.S. homes fall under high or extreme wildfire risk, according to Verisk Analytics. However, homeowners can still protect themselves with the right home insurance policy. Let's review wildfire insurance, how it works and how you can find the best coverage in your area.

What is wildfire insurance?

Most home insurance policies cover fire damage, but you may need extra protection if you live in a high-risk area for wildfires. Wildfire insurance can be purchased as additional coverage and varies on policy type, damage, and whether you live in a high-risk zone.

Coverage considerations for wildfires

If you're shopping for wildfire insurance, you have two coverage add-on options: extended replacement cost coverage and guaranteed replacement cost coverage.

Extended replacement cost coverage

In the event of a wildfire, extended replacement cost coverage increases your dwelling coverage limit. If a wildfire causes damage throughout your neighborhood, labor and construction costs will increase due to demand. If this happens, extended replacement cost coverage adds anywhere from 25%-50% to your dwelling coverage limit to cover the inflation.

Guaranteed replacement cost coverage

If your home is destroyed in a wildfire, guaranteed replacement cost ensures it's rebuilt to how it was before, regardless of your dwelling coverage limit.

Does homeowners insurance cover wildfire damage?

Many home insurance policies cover wildfires just as they cover electrical and lightning-based fire damage, so contact your insurer to review your coverage. If your insurer offers wildfire coverage, your policy should provide dwelling coverage, personal property coverage and loss of use coverage.

Double-check your homeowners insurance policy to ensure adequate coverage if you reside in a high-risk area for wildfires.

Dwelling coverage

Dwelling coverage pays for your home repairs and rebuilding if your property is damaged or destroyed. It also applies to attached structures like garages and patios and covers the cost of removing debris from the fire.

Your policy will pay out a capped amount known as a dwelling coverage limit. This limit is your home's total replacement cost: the total cost to rebuild from the ground up, including construction costs and local labor.

Personal property coverage

Your homeowners policy also will cover the cost of replacing or repairing your personal belongings - such as electronics, furniture and clothing - up to your personal property coverage limit. This amount caps at half your dwelling limit, although most companies will let you adjust it. Review your policy to determine whether your personal property limit is enough.

Loss of use coverage

If you must evacuate your home due to wildfire damage, loss of use coverage may reimburse you for any costs of living due to rebuilding or evacuation, including:

• Temporary rentals or hotel stays.
• Restaurant meals.
• Transportation costs.
• Laundry and dry cleaning.

Loss of use coverage varies by policy, so review your policy terms to ensure your coverage is enough in the event of a wildfire.

What to do if your homeowners insurance doesn't cover wildfire damage

With high temperatures, droughts and wildfires increasing yearly, many insurers have started denying coverage and canceling policies in high-risk areas. But you still have a few coverage options if you live in one of these locations.

• Excess and surplus lines insurance

It's pricier than standard homeowners insurance, but excess and surplus lines insurance covers risks too high for regular insurers. This includes homes located in areas of extreme wildfire risk.\

• High-value homeowners insurance

If your home value is more than $1 million, consider buying high-value homeowners insurance from premier insurance companies. High-value homeowners insurance often provides other services such as wildfire mitigation and private firefighter services.

• FAIR plans

Most states offer a Fair Access to Insurance Requirements plan: homeowners insurance for residents in high-risk areas without wildfire insurance. Because these FAIR plans are pricey and provide less coverage than the typical policy, they're generally only recommended as a last resort.

Does renters insurance cover wildfire damage?

Your landlord's policy may cover the cost of repairing your rental in the event of a wildfire. However, the renter must have personal property coverage to cover any damage or replacement to their personal belongings. The renter's loss of use coverage should also cover temporary housing if they need to evacuate or stay elsewhere.

Wildfire insurance FAQs

-        Does homeowners insurance cover wildfires?

In many instances, yes. Many standard policies cover wildfire damage to personal property and homes unless you reside in a high-risk area. Check with your car insurance provider to ensure your policy covers any wildfire-related damage to your vehicle.

-        What does a fire insurance policy cover?

Fire insurance policies include personal property coverage, dwelling coverage and loss of use coverage.

-        What do I need to know about fire insurance?

This coverage is generally included in standard homeowners insurance policies, but ask your provider to ensure you have the right coverage for your needs.

-        What are the benefits of adding fire insurance to my homeowners insurance policy?

In a fire, your coverage will help pay to repair or rebuild your home, haul away debris and more. It also pays for additional living expenses and personal belongings due to the disaster.

-        What is a replacement cost policy?

This policy offers coverage in the amount needed to rebuild or repair your property to its original condition using materials of the same quality and kind.

Despite the increasing number of wildfires, homeowners still can take steps to protect their homes and personal belongings with wildfire insurance add-ons, state FAIR plans and more. If you're interested in adding wildfire coverage to your policy, check with your insurer and review your available options.

Mark Romero is a home insurance expert with Agile Rates. He may be contacted at [email protected].

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