How to secure homeowners insurance in disaster-prone areas

Grant Wilson was a week from closing escrow on a home near Santa Barbara, California, when his mortgage lender asked for proof of homeowners insurance. He called his auto insurer, thinking his new home could be easily added.

His agent quickly dispelled the notion. Wilson’s new home had previously sustained some wildfire damage; other homes in his neighborhood had burned down. His insurer would not write a policy because the risk was too high.

Wilson’s story is not so unusual. Wildfires, tornadoes, hailstorms, hurricanes, and freezes affect many states, and more homeowners nationwide are struggling to secure coverage. In fact, 2 of California’s biggest insurers recently stopped writing new homeowners policies in the state, citing skyrocketing construction costs and the high probability of natural disasters.

As extreme weather becomes more common and more severe, insurers are reassessing how much risk they want to take on. Talk to your insurance agent to understand what natural-disaster coverage you have and whether it’s enough.

First, don’t panic. You might be able to find another insurer who will write a policy on your house. (Grant Wilson did—although the insurance was very, very expensive and offered minimal coverage.) If no private insurer will cover your home, check the Fair Access to Insurance Requirements (FAIR) plan offered in your state.

A FAIR plan provides limited coverage for high-risk homes. It tends to cost more than typical homeowners insurance and covers the dwelling only for limited perils, such as catastrophe. It does not usually cover personal property or loss of use. You can add a difference in conditions (DIC) policy, also called a “wrap policy,” that will provide more comprehensive coverage, but those policies are also typically very expensive.

Consider location, and ask your insurance agent if coverage will be available before making an offer. Some real estate agents require clients to secure insurance before the start of escrow.

Answer: Standard policies typically exclude flood damage, but you should be able to buy a separate policy from the National Flood Insurance Program, managed by FEMA. If you live in a high-risk area, you’ll likely be required to purchase flood insurance as part of your mortgage agreement.

Have you experienced a major life event? Make sure all your AAA policies are up-to-date. For other insurance information, go to AAA.com/insuranceinfo, call (844) 226-3897, or visit your local AAA branch.