Should you buy wildfire insurance?

Key points

• Wildfires have been increasing in frequency, leading to record-breaking insured losses.
• Wildfire insurance is included in homeowners insurance, but if you live in a high-risk area you may struggle to find coverage.
• A FAIR Plan — short for Fair Access to Insurance Requirements Plan — may be an option if you are having a difficult time finding home insurance.

In recent years, there’s been a record-breaking amount of wildfire insurance losses, and not only in the high-risk western states.

Last year, 2,717 structures were destroyed by wildfires, including 1,261 residences and 91 commercial/mixed residential structures. Currently, more than 4.5 million homes in the U.S. are currently considered at high or extremely high risk of wildfire.

As of Aug. 15, 2023, Hawaii is battling wildfires that are projected to result in around $6 billion in damages, according to Hawaii Gov. Josh Green. And from Jan. 2023 to Aug. 2023, there’s already been more then 1.6 million acres burned nationwide, according to the National Interagency Fire Center.

Home insurance covers fire damage, but with the increase in wildfire destruction across the U.S., it’s important to make sure your home insurance is up to date with the coverage you need.

How much wildfire coverage does homeowners insurance cover?

How much your home insurance will cover repairs to your property after a wildfire will depend on your policy and coverage limits.

Here’s how different coverages work in the event of a wildfire:

• Dwelling coverage: Pays to rebuild your house if it is destroyed in a wildfire. You should have enough dwelling coverage to rebuild your house from the ground up, if necessary.
• Other structures coverage: Pays to rebuild detached structures on your property — like a shed, fence, or gazebo — if any are damaged or destroyed by a wildfire.
• Personal property coverage: Pays to replace or repair your belongings if they’re destroyed in a wildfire. Standard home insurance pays out for your belonging’s actual cash value, meaning depreciation is factored into the claim payout. If you want to be reimbursed at today’s prices, ask your insurer about replacement cost coverage.
• Loss of use coverage: Pays for your additional living expenses — like a rental house or hotel stay, restaurant meals and pet boarding — if your house is uninhabitable after a wildfire and you need to temporarily relocate. If you are ordered to evacuate your house — even if it isn’t damaged yet — you may still be able to tap into your loss of use coverage, depending on the severity of the wildfire, your state evacuation guidelines and your insurance company.

Homeowners insurance also offers a limited amount of coverage for trees, shrubs and other landscaping on your property, since anything in your yard is also likely to be destroyed if there’s a fire.

Additional home insurance coverage considerations for wildfire damage

You may want to consider upgrading your dwelling coverage if you live in an area that’s at risk for wildfire damage.

According to Brian Tausan, an insurance agent with Country Financial, the rising cost of homebuilding makes it challenging to keep your insurance coverage up-to-date.

“It’s a good idea to check with your agent to see if you have additional replacement cost coverage, which includes labor and construction materials with no limits and accounts for inflation,” said Tausan.

Coverage offerings vary but insurer, but here are some additional coverages and upgrades to consider:

• Extended replacement cost coverage: If the wildfire destruction to your house exceeds your policy’s original dwelling coverage limit — likely due to the increased demand for labor and materials in your area — this upgrade can extend your coverage limit by 10% to 50%, depending on the insurer.
• Guaranteed replacement cost coverage: This coverage serves the same purpose as extended replacement cost, except it takes it a step further — there is no coverage limit. That means your house is guaranteed to be rebuilt back to its prior state before the wildfire, regardless of how much the repair costs exceed your original dwelling coverage limit.
• Ordinance or law coverage: This additional coverage can pay to make sure your house is up to code after a covered wildfire. You may want to consider this if you live in an older house that needs upgrades according to your local building codes.
• Inflation guard coverage: This coverage automatically adjusts your coverage limits annually to account for rising construction and rebuild costs due to inflation. Check with your agent to see if it’s already included in your policy or if you can purchase it as an add-on.

When doesn’t home insurance cover wildfire damage?

While homeowners insurance covers fires, some expenses may not be included. For example, your insurance may not cover damage caused indirectly by a fire.

“Regarding hazards related to wildfires, homes in mountainous areas can be at risk to landslides, especially if there is a lack of vegetation, which is often a result of wildfires,” said Tausan. “Landslides are characterized as earth movements and are not covered under a standard homeowners insurance policy.”

Finding home insurance in high-risk wildfire areas

As insurance losses related to wildfires increase, it’s becoming more difficult for homeowners in fire-prone areas to find affordable insurance.

“Insurance companies rate policies based on the risk of the property suffering a loss,” said John Bachmann, Vice President of Client Relations for Norwood Insurance Agency. “Therefore, properties in wildfire risk zones may pay higher [premiums], similar to how properties on the coast may pay higher premiums due to the risk of [hurricanes] and flooding.”

Not only can insurance companies charge more for homeowners insurance policies in high-risk areas, but they may also simply stop offering them. In California, major insurers like State Farm and Allstate have stopped writing new home insurance policies due to the increased wildfire risk.

If you are struggling to find home insurance, you still have options.

Your state’s FAIR Plan

A FAIR Plan — short for Fair Access to Insurance Requirements Plan — is state-mandated last resort coverage for homeowners who can’t find coverage in the open marketplace. You may need to meet certain requirements in order to qualify for a FAIR Plan, like having been rejected a certain number of times by different home insurance companies.

FAIR Plans are typically more expensive and less comprehensive than standard home insurance.

Premium homeowners insurance companies and policies

A homeowners insurance policy through a premium insurance company or one that offers high-value home insurance, like Chubb, Progressive Home or Nationwide Private Client, is another way to find coverage.

You may need to meet certain requirements in order to qualify for a high-value policy, like your home may need to have a high rebuild value, such as more than $750,000, or you may need a certain amount of assets to your name.

Keep in mind that this type of policy is likely to come with a more expensive price tag than traditional homeowners insurance since your house’s rebuild value is higher.

Excess and surplus lines insurance

Excess and surplus lines insurance covers hazards that may be too high risk for other insurance companies. In some parts of the country, this includes houses at risk for wildfires. These policies may be more expensive than traditional homeowners insurance, because they are non-admitted insurers, meaning they aren’t subjected to the same in-state regulations and rate increase guidelines.

How to prepare for a wildfire

There are several steps you can take to protect your property and prepare for a wildfire.

• Update your roof with less combustible materials, such as metal, clay or tile.
• Remove vegetation from your roof and lawn.
• Install ember and flame-resistant vents.
• Keep your rain gutters clear.
• Cover your chimney with a non-flammable screen.
• Buy fire extinguishers and other emergency supplies.
• Prepare an evacuation plan for you and your family.

If you fireproof your house and property, you should let your home insurance company know, as you may be rewarded with a discount.