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Saturday, November 17, 2018

Homeowner's Insurance/A Cautionary Tale


Homeowner’s Insurance/A Cautionary Tale
   In October of 2017, the Tubb Fire hit Santa Rosa. Some neighborhoods and homes were spared. 2,900 homes, 94 businesses, and several outhouse buildings burned to the ground. Some homeowners and some business owners “bailed out.”
   A group of courageous and determined homeowners decided to rebuild and start their life over in Santa Rosa. They worked against incredible odds to rebuild their house. A story was repeated time and again in this rebuilding process. The final bill for the new house was, say, $600,000. Insurance covered some $300,000. The homeowners had to make up the difference out of their pocket or with new loans.
   What happened here? The first problem is that the homeowners and their insurance agents were “asleep at the wheel.” California home prices have had dramatic increases over the last 20 years or so. The homeowner’s insurance replacement coverage had not been updated to reflect the reality of the housing market in the Santa Rosa area.
   A second problem “reared its ugly head.” Elena and I have been quite lucky to have Joline Banks as out State Farm agent. She has 26 years in the insurance industry. She is a most-competent lady. She also has genuine empathy for her clients and works very hard to protect them from unpleasant surprises.
    In normal times, if a home is lost to fire or massive water damage or a huge truck crashing into it, etc. an updated-replacement price from the insurer will generally cover the replacement costs. There are enough architects, construction workers, and support people available. Building material prices are at a reasonable market value.
    When you have a large-scale natural disaster like a fire, earthquake, or major flood, the Law of Supply and Demand kicks in. Demand for architects, construction workers, support people, and building materials goes up greatly. This drives up prices to replace a home significantly. Joline talked about our home that could cost $350.00 per square foot to replace. In a disaster scenario, this cost could go up to $700 per square foot. One can purchase a rider on their homeowner’s policy to cover this contingency. One needs to also consider this rider for earthquake insurance and flood insurance. We elected to purchase this rider.
         If you’re a homeowner or business owner, please talk to your insurance company and financial advisor to see what you need to do in this case.


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