The brush fires that have swept through Southern California over the past two years are making it increasingly difficult for residents to get affordable homeowners insurance in many areas.
Realtors who are working with buyers seeking properties in rural areas need to advise them early on in the transaction that they will likely pay much higher rates for coverage. The cost for home insurance for an average home in these fire-prone areas can be around $5,000 a year — and even more!
That kind of premium can jeopardize a prospective homeowner’s debt-to-income ratio, and ultimately their chance of securing their mortgage loan.
In the Santa Clarita area, these fire-prone areas include of Acton, Val Verde, Agua Dulce, Sand Canyon; plus other rural areas. Even homes in Santa Clarita proper fall into this category if they are at the edge of town in close proximity to brush.
At Insurance SCV, it is standard practice to secure preferred insurance first. But if the home is ineligible for preferred insurance, here are the options:
Surplus Lines Insurance – These policies are provided by companies that are not California admitted carriers and premiums are higher. They are not part of the California Insurance Guarantee Association (CIGA). Admitted carriers, by contrast, pitch in a little to CIGA, so if the carrier goes bankrupt, CIGA will pay for any claims. Lloyds of London and Lexington Insurance (which is owned by AIG) are prime examples of non-admitted carriers and since both carriers are financially strong, consumers should be okay.
California Fair Plan – This is a policy of last resort because of its many gaps in coverage. A Fair Plan policy doesn’t include theft, water damage or liability protection so a second companion policy called “Difference in Condition,” or DIC needs to be purchased — to fill in these gaps. Unlike preferred carriers that will invoice for the premium, the Fair Plan requires that the premium be paid up front with the effective date following the day after. If this procedure is not followed, the close of escrow can be delayed. So yes, two policies must be purchased in order to provide necessary coverage, which also makes for a very expensive package.
The California Fair Plan has been known for years as the policy of last resort, but it’s rapidly becoming the new norm. It’s also important to note that most homes in urban areas as well as those in the suburbs are not affected by this, as long as the home is not in close proximity to brush.
If you have questions, contact Carol Smith of InsuranceSCV at 661-803-3803. We specialize in providing insurance in difficult situations, but we can insure those suburban homes (and cars) as well.