Homeowners Insurance in California
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UPDATED: Mar 13, 2020
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You might think that purchasing homeowners insurance is a complicated hassle, but the truth is that it doesn't have to be. As long as you do your research and prepare accordingly, you can make purchasing a homeowners insurance policy a much less stressful process.
In some ways, the homeowners insurance companies in California still reflect the "wild west" spirit of the olden days. This is because most companies don't strictly adhere to the HO-3 standard policy and instead craft unique, custom-made policies for each individual customer. In some ways, this is helpful for their clients because it gives them the freedom to pick and choose the coverage they need at a price they can afford. On the other hand, this means that the customer has to do a lot more homework to find out what specific types of coverage they need so that they don't get confused or swindled by a less-than-ethical insurance provider. Here's an example: for a $500,000 home, minimum mandatory coverage limits can be found in the chart below.
|Type of Coverage||Coverage Amount|
|Replacement Cost (Dwelling)||$500,000|
|Replacement Cost (Contents)||$250,000|
In addition to the mandatory minimums above, some companies will give you the option to increase your coverage limit if you feel it's necessary. However, the two biggest natural threats to California property - earthquakes and fire damage - aren't covered on most policies. For that type of coverage, you may have to add coverage options offered by your insurance company (at extra cost) or purchase separate coverage. These coverages may be available from another insurance company, or a federal agency such as the NFIP.
The numbers above were estimated based on data from the California department of Insurance. If you're looking to buy a $500,000 home that is more than 15 years old, the average numbers in the chart above may reflect your annual premium costs. But other factors may drop your premium, such as a cheaper home, a higher deductible, or adding fewer coverage options to your policy.Likewise, you can significantly lower your premium by shopping around and making sure you choose the most affordable insurance company in your area.
Laws and Requirements
Similar to many other states, you don't technically have to purchase homeowners insurance if you buy a home in California. But it's a good idea to have it if you want to protect your investment from natural disasters and other financial burdens. However, you may be required to purchase this type of insurance if you have a mortgage. This helps your lender protect their investment in your property, just in case something bad happens while you are still paying off your loan.
Taking a Home Inventory
Before you start shopping around for an insurance policy, you will first have to perform a thorough home inventory of your property and belongings. Aspects of a home inventory include the total cost of your house, valuable belongings inside (like furniture or appliances), and external structures such as a shed or a solar panel array. The closer you are to the actual value of your home, the easier it will be to get sufficient coverage at an affordable price.
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Choosing What (and How Much) Coverage
The basic HO-3 policy that many California home insurance companies offer is really only the tip of the iceberg. On top of your basic policy, there are many other factors to consider. Such as:
- Fires - fires, and wildfires especially, are a growing concern in the increasingly arid climate of California. Some insurance companies don't offer fire coverage at all, forcing some residents to purchase separate insurance from other companies. Other insurers will raise rates anywhere from 30% - 140% or more on homes deemed to be located in "wildfire areas".
- Floods - Like many states, private insurance companies don't (or won't) cover damage from floods on your insurance policy. There is always the National Flood Insurance Program (NFIP), but their coverage limits may not pay out 100% of replacement costs on a home worth more than $250,000. You may also want to try a private flood insurance company, but be wary; scams are common with these types of agencies in California.
- Damage from Winter Storms - Whenever people think of California, they picture sunny beaches and palm trees; but this large state stretches all the way up to the southern border of Washington state. In such northern latitudes, winter storm damage could become a problem. Be sure to ask your insurance agent about such coverage if you happen to be living in northern California and have concerns about the winter weather.
- Earthquakes - In addition to flood worries, the west coast of California has to worry about earthquakes caused by the faultlines that run just offshore and under the ocean. Earthquake insurance is a separate policy, regardless of whether your homeowners insurance company offers both or not. And because of California's high risk of earthquake-related property damage, the premiums won't be cheap. Often, homeowners may see a premium that is equal to their entire homeowners policy just for this type of coverage.
- Covering Your Property - The physical structure in which you live maybe your house, but it isn't a home without your personal belongings. In the state of California, your average homeowner's insurance policy will include coverage to replace destroyed or damaged items in the event that a disaster destroys not just the structure of your house, but it's precious belongings as well.
- Liability Coverage - a disaster can happen at any time on your property. But if it happens to someone who does not live in your home, or their property, you may be held responsible for any damages or expenses incurred. Liability coverage protect you financially and the events that something bad happens to a person or a piece of property at your residence.
- Umbrella Coverage - California is an expensive place to live. For some estates, your basic homeowners insurance policy will not cover the total amount of financial protection you need to make sure all of your assets and your house structure are secure. Umbrella coverage gives you the option to purchase higher coverage limits, albeit on a separate policy, so that you are financially secure and completely protected.
Replacement Cost vs. Actual Cash Value
When your insurance policy says it will replace something at cost, it means that the payout on your claim will be enough money to replace or repair damaged at its actual cost. Actual cash value, is very different. This designation incorporates depreciation. For example, if you need to repair a 10 year old roof repaired at actual cash value, you probably won't get the total value of a brand new roof from your insurance company. But if you were replacing it at Cost, you would. In some states, your homeowners insurance is either all replacement cost, or all actual cash value. But in California, many homeowners insurance policies will designate certain types of coverage as either replacement cost, or actual cash value.
How Your Credit Score May Influence Your Rate
There are three states in this country which prohibit Auto Insurance Underwriters from looking at your credit history before deciding your premium. Some homeowners make the mistake of assuming that this rule applies to every type of insurance; unfortunately it does not.
The good news is that when a homeowner's insurance company looks at your credit history in order to determine your annual premium, they will most likely make what is called a "soft check" or request a CLUE Report. These reports take a look at your past 7 years of claims history and payment reliability with other insurance companies, but they do not leave a negative mark on your credit history the way a "hard" credit check would.
For more information, feel free to click any of the links you see in this article. They all lead to more detailed information about homeowner's insurance, specifics on purchasing a policy, and how to find the best deal. You should also contact local resources in your state, such as:
Or contact them directly through the following resources:
California Department of Insurance Headquarters Offices
300 Capitol Mall, Suite 1700
Sacramento, CA 95814
San Francisco Office
45 Fremont Street, 23rd Floor
San Francisco, CA 94105
Los Angeles Office
300 South Spring Street, South Tower
Los Angeles, CA 90013
Phone: 1-800-927-4257 | Fax: 303-894-2683
California DOI Email Assistance Form