Are You Fully Covered? The Gaps in Your Home Insurance That Could Cost You
The recent fires in Altadena and Pacific Palisades have left many homeowners facing a harsh reality: their insurance policies might not provide the coverage they actually need. Too often, policies are based on outdated valuations, arbitrary limits, and incomplete coverage options—leaving homeowners financially vulnerable in the wake of disaster. If you haven’t recently reviewed your policy, now is the time.
Here are three critical gaps in home insurance policies that every homeowner should address:
1. Underinsured Dwelling Coverage
Most homeowners assume their insurance policy automatically keeps pace with the value of their home. That’s a dangerous misconception. If you’ve remodeled, added square footage, or simply watched construction costs rise over the years, your policy may not reflect the actual cost to rebuild your home today. Many policies are written based on outdated valuations, leaving homeowners to cover the difference out-of-pocket when disaster strikes.
What to do:
Review your dwelling coverage amount and ensure it reflects current rebuilding costs—not just your home’s purchase price.
Factor in recent renovations, like kitchen remodels or home additions, when updating your policy.
Work with your insurance broker to get a professional valuation of your home’s true replacement cost.
2. Insufficient Extended Replacement Coverage
Most policies offer extended replacement coverage, which increases the amount the insurer will pay beyond the dwelling limit in case of a total loss. However, the default extension (often 10-20%) may not be enough to account for sudden spikes in construction costs, which often happen after a major disaster.
After a wildfire, for example, rebuilding costs skyrocket due to high demand for materials and labor. Homeowners who haven’t adjusted their extended replacement coverage could find themselves tens or even hundreds of thousands of dollars short.
What to do:
Increase your extended replacement coverage to at least 20-50% more than your dwelling coverage.
Be aware that insurers may require proof of loss and documentation of home improvements to justify higher coverage amounts.
Consult an insurance expert to determine the right coverage based on local rebuilding costs.
3. Outdated Ordinance and Law (O&L) Coverage
If your home was built before 1990, there’s a high chance that it doesn’t meet today’s building codes. In the event of a total loss, insurers will only pay to rebuild your home as it was—unless you have Ordinance & Law (O&L) coverage. This covers the extra costs of bringing your home up to current code, including seismic reinforcements, fire-resistant materials, and energy efficiency upgrades.
Many policies default to just 10% O&L coverage, which is often insufficient for older homes requiring significant updates to meet modern regulations.
What to do:
Increase your O&L coverage from 10% to 25-50% of your policy limits.
Work with a local contractor or architect to understand what building codes have changed since your home was built.
Verify with your insurance provider that your policy covers mandatory upgrades in the event of a total rebuild.
Take Action Now
If your home is still standing after the recent fires, consider yourself fortunate—but don’t assume you’re protected against the next disaster. Many homeowners only discover these insurance gaps when it’s too late. By taking these steps now, you can avoid financial hardship and ensure that your home is truly protected.
Action Items: ✅ Review your dwelling coverage and increase it to reflect the current cost of rebuilding your home. ✅ Ensure you have enough extended replacement coverage—aim for 20-50% more than your dwelling coverage. ✅ Increase your ordinance and law (O&L) coverage from the default 10% to at least 25-50% if you have an older home. ✅ Work with your insurance broker to make these coverage adjustments before disaster strikes.
Home insurance should offer peace of mind—not unpleasant surprises. A few proactive changes today can mean the difference between a smooth recovery and an overwhelming financial burden in the future.
