Wildfires, Insurance and You

Rebuilding a home after a wildfire

As I listen to the news on my Echo (hey, toys are fun and Alexa is a handy pal) each morning, I can’t help but feel incredible sorrow for the people who are being evacuated from their homes because of wildfires. Everyone says, “Oh, don’t worry, they had INSURANCE.”

This is the beauty of not having had to experience a house fire.

And while I’ve never had a house fire of my own, in ten years serving my community as a Realtor, I’ve seen them, I’ve heard horror stories and I’ve been asked to help provide information for borrowers who were fighting to save their own financial futures.

A House Fire is No Small Thing

A house is just a really big object; your family, your pets, your priceless family heirlooms -- those are things that can’t be replaced. But that’s not entirely true, is it? A house, as I have written time and again, is a building that has a life of its own. I’ve never seen real estate described so eloquently as Thomas Moore did when he lamented the “scintilla of its soul:”

“Sometimes, the spirit of a place is so strong, you may think you see its face and glimpse it gamboling over a field or peeking out of a forest. This spirit we sense in each locality would once have been described as the scintilla or spark of its soul, the pearl in the oyster. It accounts for the magic of a region, and, without it, an acute sense of place dissipates into a vague and lazy feeling of nowhere … It’s when we lose a vivid sense of region and locality that the spirits of the place crawl back into hiding and human life becomes pale with the loss.”

A house--your house--is something between an object and a life, with its own spark. It’s an object in which life is shaped and is then, in turn, is shaped by those lives. It’s more than shelter, it’s a financial and emotional anchor. It’s a way to establish a permanent place in the world. A home is more than a pile of lumber, so when a fire tears through your home, not only does the spark of that home go out, a little part of you dies inside.

I wish there was an easier way to say that, but there isn’t. A house fire is more than a fire. It’s an emotional (and financial) nuclear detonation. Even though it’s an experience most of us will never have to go through, the last thing you want is to have to figure out your insurance while you’re still in shock and disbelief that the place that made your life full is gone forever.

That’s why I wanted to discuss this giant issue today. Today, for most of us, it’s a small thing. But for the people currently living in active wildfire zones, it’s the only thing.

What Happens to Your Mortgage When There’s a Loss

You might remember that when you took out your insurance policy, you had to name the bank you were borrowing money from as a “loss payee,” or in other words, someone who gets a check when your home is damaged. If it were to be burned to the ground, like in the case of these recent wildfires, you would get a straight up payout for things like personal belongings and alternative lodging coverage, no bank attached, but that’s where the easy part ends. 

Instead of just being presented with a giant check for the value of the policy, you have some decisions to make. You can choose to not rebuild, sell the smoldering ruins of your home and buy another, but a conventional loan, for example, will consider this a default on your mortgage.

You can rebuild and essentially keep the same loan in place, in that case, the funds will go into escrow and be paid out as the builder completes milestones. You’ll also have to decide if you’re going to replace outbuildings that may have also been destroyed. But your timing matters, too, because a whole neighborhood ravaged by fire is going to drive the price of building supplies and labor.

It all sounds pretty ok until you consider that most people don’t know how much coverage they have or if it would be enough to rebuild their home and belongings. This is why yearly coverage reviews with your agent are so important. I look at all those homes in California and I can’t even imagine what shock the owners go through when they learn that they’ve been underinsured by a huge percentage since the market got back on its wobbly feet.

It Burns, Burns, Burns…

I know that thinking about your house burning to the ground is a mighty horrific thing to do, but this should be a once-a-year exercise. Go see your agent today and ask them if you have enough coverage. Don’t go in with the attitude that they’re just trying to spend your money, your coverages need to be right. You can’t change them after you’ve had an incident.

Proper coverages will make all the difference between being able to rise from the fire like a (cliche incoming!) phoenix and your financial world going up in smoke. Without everything lining up, you’re going to be facing some really tough choices, like what you’re going to do about needing to rebuild a $400,000 house with only $300,000 worth of coverage. I don’t suppose I have to work the math out on that one for you.

Like with so many things in life, insurance often seems like a waste of money until you need it. If you live in your house very long at all, you’ll probably have to file a claim. Maybe the shingles will blow off the roof in a windstorm or the neighbor will trip on your property because of your dog and have a nasty stack of hospital bills for you to pay. Whatever it is, the coverage should be there when you need it.

It shouldn’t take a wildfire to ensure homeowners have the right coverage. But too often, it seems that it does.