IA “FACT” already wrote about a large-scale forest fire in California that covered more than 510 hectares. Strong winds caused the fire to spread quickly, destroying homes and forcing residents to evacuate. Firefighters used aircraft and special equipment, but evacuation was complicated by congested roads. Local authorities have declared a state of emergency due to the risk of downed power lines and strong winds that are fueling the spread of the fire.
American media are holding hand on the pulse of suffering California. A large-scale disaster zone is struggling to rebuild areas scorched by fires, but the battle is not easy: resources are limited, and the threat of new disasters looms like a shadow that never goes away. Those who have lost not only a roof over their head, but also a future burdened with debts bear the most pain. Imagine: your home, full of warm memories and hopes, disappears in flames along with everything you had, but the bank that once provided the mortgage does not see this. His cold calculations require one thing – to pay. Every month, year after year, you are forced to pay money for real estate that no longer exists. This is not just a tragedy, it is a burden that burns the heart, leaving scars for life.
Loss of home and dreams due to lack of insurance coverage
The rescue in such a situation should be insurance, but only under the conditions of sufficient coverage of losses incurred due to a natural disaster. A policy with the right coverage can provide financial support for paying off your mortgage or rebuilding your home. However, many Americans choose an actual value policy that takes into account wear and tear. In this case, the compensation may be much less than required. For example, if the house was worth $300,000, but its market value due to aging is $200,000, the owner will only receive that amount and will have to find the rest elsewhere.
The situation becomes especially dramatic when the owner realizes that even the received insurance payment is not enough to cover the losses. High prices for building materials, rising costs of work and the inability to find additional funds leave many in despair. They see only the remains of their house in front of them and realize that it will be impossible to bring it back to life.
It is worse when there is no insurance at all. Imagine a person who lost everything, was left homeless, but with a mortgage debt of thousands. She is forced to rent a new home while paying the loan for the destroyed house, and at the same time, she has no support to rebuild. This impasse pushes many into bankruptcy, the loss of other assets, and long-term financial difficulties.
Stories like these remind us how important it is not just to have insurance, but to have adequate coverage. A replacement-value policy can save a person from financial ruin, while insufficient or no policy often leaves burn victims with the terrible double burden of a lost home and years of debt to pay off. For many, it’s not just material losses – it’s broken dreams, lost stability and a life that needs to be started from scratch.
State support of the California FAIR Plan and the California Earthquake Authority
Standard home insurance in the US provides basic protection but does not cover major natural disasters such as earthquakes and wildfires. This is because insurers are afraid of large financial risks. For example, in California, earthquakes can cause massive destruction, and it is not profitable for insurance companies to cover all victims. Therefore, protection against earthquakes can be obtained only with an additional policy – through the California Earthquake Authority program.
Wildfires in California cause significant damage, but standard home insurance does not cover such events unless there is an additional option. That means residents either have to pay more for extended coverage or risk being left without financial assistance in the event of a fire. The state offers special programs, primarily the California FAIR Plan, for basic protection for those who cannot get insurance because of high risk.
This plan was created so that even in the most risky regions, people have the opportunity to insure their homes. It covers damage or loss to your home due to fire, explosion, vandalism or lightning. However, FAIR Plan offers only minimal coverage, which is not always sufficient for full recovery, and premiums are often higher than conventional policies. This is basic help for those who have no other options.
Along with this, additional support is provided by the Federal Emergency Management Agency for temporary housing, repair costs, and low-interest loans to rebuild your home or business. In addition, the agency provides basic necessities, food and other resources to help people cope with the aftermath of the disaster.
However, even this support has its limitations. Assistance from FEMA is usually temporary and aimed only at basic restoration, while full restoration of housing depends on having sufficient insurance coverage. For many, this becomes a challenge, as not having a standard policy or insufficient coverage leaves them with huge financial problems.
Government support such as the California FAIR Plan and FEMA programs are an important part of the fire protection system. It provides minimal resources to start recovery and allows people to take the first steps towards a return to normal life. But often this assistance is not enough to fully compensate for the losses, so residents of risky areas are faced with a difficult choice: live in constant fear or invest in more expensive insurance, which can be decisive in the worst moments.
Actual property value policy vs policy with property replacement cost coverage
Homeowners insurance in the US provides financial protection if your home or property is damaged by fire, hurricane, theft, etc. Insurance companies will pay compensation for repair or replacement. Owners can choose policies with different risk coverage and add additional options. This helps to avoid financial losses in unforeseen situations.
Such exclusions from standard insurance not only highlight residents’ vulnerability to the elements, but also create a dilemma: pay more for extended coverage or risk losing everything without compensation. This is especially critical in areas where the question of disaster is not “if it will happen”, but “when it will happen”. As a result, residents not only struggle with the consequences of disasters, but also face financial burdens, as basic protection is often insufficient.
So, the principle of insurance, according to which the insurance company covers the costs of full restoration or replacement of a damaged house without taking into account its wear and tear, is called replacement cost. For example, if your home is destroyed, the insurance company will pay for the roof, walls, windows, and other restoration work using new materials and services to restore the home to its original condition.
For example, if your old roof needed repair and was damaged by a natural disaster, the insurance company will not take into account its wear and tear. You will receive funds to install a completely new roof with modern materials. This gives you confidence that even in the event of total destruction, you can rebuild your home without additional finances. This is beneficial for homeowners, as it provides full coverage of restoration costs regardless of the condition of the home. However, such policies are usually more expensive because modern materials and services can cost more accidents, damage by various methods, even including accidents.
Therefore, in order to be sure of the complete restoration of your home, you need to have insurance coverage based on the principle of “replacement cost”. This is not only financial support, but also peace of mind in case of disaster.
Another type of insurance is actual value, when compensation is calculated taking into account the wear and tear of the property. This means that payment is made based on the market value of the property before damage, and not based on the cost of a new one. Imagine that your property has been damaged in a fire. For example, 5 years ago you bought kitchen appliances for $5,000. Now, due to use and wear and tear, its value is down to $2,000. If your insurance policy is based on the principle of “actual value”, the insurance company will pay you exactly this amount. While that money will help, it won’t be enough to buy new equipment that costs more.
This method is beneficial for insurance companies, but can create problems for homeowners. Compensation is often less than what is needed to replace the damaged property. For example, if the roof of a house built 20 years ago is damaged in a hurricane, compensation will be based on the current value of the old roof, not the amount needed to install a new one.
An actual value policy is often less expensive than a replacement value policy and may seem like an attractive choice to reduce your insurance costs. However, in the event of a disaster, you risk facing financial difficulties, as the payout may be significantly less than the actual cost of recovery.
This approach is popular among owners of older buildings or older properties. But those who want to protect themselves against large financial losses should consider replacement cost insurance. The choice between “actual value” and “replacement value” comes down to a balance between the desire to save on insurance and the need for maximum protection in the event of a disaster
In the event that the home becomes uninhabitable due to damage or destruction, additional costs will come in handy – Additional Living Expenses. For example, if your home is damaged by fire and you need to find a new place to live, the policy will cover the cost of temporary housing, renting an apartment or staying in a hotel. This also includes other expenses – eating in restaurants or paying for storage of things. Yes, if your rent is $2,000 a month, the insurance company will reimburse you for that amount while your home is being repaired. The policy provides financial stability, allowing you to focus on rebuilding your home rather than worrying about additional costs.
However, there are certain limitations to this coverage. Insurers often set a monetary or time limit, for example, up to 20% of the total insured amount. Expenses must be reasonable, and if you choose to rent a luxury home, reimbursement may be denied.
Tetyana Viktorova
