The 2025 Los Angeles Fires left a trail of devastation, destroying thousands of homes and causing billions of dollars in damage. Many affected homeowners are now facing financial hardship because they are underinsured, forcing them to cover the gap between their insurance payout and the actual cost of rebuilding. We strongly encourage homeowners to review their insurance policies to ensure they have adequate coverage in the event of a future disaster. 

One of the most critical factors in a homeowners insurance policy is the dwelling limit. In the past, some policies included guaranteed replacement cost coverage, meaning insurers would fully cover the cost of rebuilding a home, regardless of depreciation or initial coverage limits. However, after widespread abuse of this policy—particularly following disasters like the Oakland Hills fire in 1991—insurance companies eliminated this option. As a result, homeowners must now ensure that their policy covers the full cost of rebuilding. If your policy is outdated, you need to account for increased construction costs, updated building codes, and any renovations you have made. Some insurers offer an additional coverage extension of up to 20%, but this may not be enough. For instance, if your home is insured for $3 million but costs $4 million to rebuild, even with a 20% extension, you would still be responsible for covering a $400,000 shortfall. 

One method for calculating adequate coverage is by looking at the cost per square foot. The cost to build a basic home will be about $500 a square foot while the cost for a premium home with high-end finishes could be about $1,000 a square foot. We typically recommend homeowners have a policy which will cover over $750 a square foot.

Another important factor is loss of use coverage. Many policies include provisions for temporary housing expenses, typically for 30% of the dwelling amount. However, rebuilding can take significantly longer—especially when entire communities, like those affected in the Los Angeles fires, need to be reconstructed simultaneously. Shortages of labor and materials can extend timelines, making it essential to ensure your policy provides extended or unlimited loss of use coverage. Without it, you may be forced to pay for additional temporary housing out of pocket once your coverage runs out. 

Additionally, some homeowners may prefer not to rebuild in areas that have been destroyed and instead might want to relocate. If your policy includes a cash settlement option, you can use your insurance payout to purchase or build a home elsewhere. Without this option, you may be required to rebuild on your original lot, potentially forfeiting funds if you choose to move. 

It is also important to note that standard homeowner’s insurance does not cover all disasters. Separate policies are required for events such as earthquakes, floods, and landslides—risks that are particularly relevant in California. If you live in a high-risk area, it may be wise to secure additional coverage to ensure you are fully protected. 

In California, many people have revocable living trusts to avoid the costly and lengthy probate system. It is important to insure your home in the name of your trust by adding it as an additional insured on your homeowners and umbrella policies. This protects both you and your trust from liability claims.

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