Many tragic stories can be told as a result of the wildfires of 2003 and 2007 which struck Southern California. As a result of my work as a property adjuster during these occurrences, I personally dealt with many policyholders who discovered all to late their tragedy was not having enough insurance to rebuild their destroyed home.
In an effort to prevent this situation from happening again, the California Office of Administrative Law approved regulations which are scheduled to take effect on June 27, 2011. The heart of the regulations rest with training agents and brokers to adequately explain the replacement cost coverage provisions of the policies they sell, and what can happen if the home or business is not insured to value.
This new set of regulations is a band-aid solution to the problem which developed when the majority of the insurance carriers in California decided to stop selling the Guaranteed Replacement Cost Coverage Endorsement. In lieu of a decent policy, they opted to sell the Modified Replacement Cost Coverage Endorsement which sounded great to homeowners and business owners due to the fact it contained the phrase “Replacement Cost.” All too late the homeowners and business owners in 2003 and 2007 who suffered major losses, became aware of the significance of the word Modified, as opposed to the word Guaranteed.
The Modified Replacement Cost Coverage Endorsement will provide a certain percentage amount of extra coverage above the amount specified for Coverage A, which is your Dwelling coverage total. That percentage is usually 25%; it can be more or less. If your home is insured for $200,000 and you have the 25% Modified Replacement Cost Endorsement, your total value of insurance would be $250,000. The $250,000 total would be the most you could receive, along with an allowance for Law and Ordinance and debris removal totals, in the event of a total loss from a covered peril. Whereas, the Guaranteed Replacement Cost Coverage Endorsement will cover your loss at what it would take to reconstruct the Dwelling which was destroyed.
A simple way to make sure your investment in a new home or business property will be protected is to secure your own appraisal on the property and make sure it is not a desk-top appraisal. Let me repeat, if you have to pay for the appraisal yourself, do it. At least you will know what it will cost to replace your property if it all burns down.
All to often in the purchase of a new home, the Insurance Broker will accept a desk-top appraisal, which may not take into account additions to the Dwelling the previous owner(s) failed to notify the city or county building departments about. A desk-top appraisal will lift the information concerning the size of your Dwelling and other buildings on the property from the county records, and if the records have not been up-dated you could be in for trouble in the event of a total loss. I believe taking this extra step, if you are a homeowner or purchasing a commercial property, will spare you serious problems if your investment should go up in flames.