California’s burning, again; the flames north of Los Angeles, also known
as the Station Fire, have already killed two people, and are
threatening tens of thousands of homes, causing the governor to declare a
state of emergency in Los Angeles and Monterey counties.

So of course it’s time for a little primer on fire insurance. I know,
you may think you understand fire insurance because you know that you’d
rather insure your home for its replacement cost rather than its initial
cost. But it’s so much more complicated than that.

Imagine, for instance, what happens when a group of twenty houses
actually burns. They don’t get rebuilt as one development, where the
builder gets bulk discounts on the windows and the roofing; instead,
“anytime there’s a fire, the house being rebuilt for the most part has
to be considered a custom home, because that’s the only one the
contractor’s doing,” insurance industry consultant Jim Haines told the
blog law.freeadvice.com.

I really hope this doesn’t happen to any of you, but if there’s a fire
and you do end up paying custom prices to replace your beautiful living
room, keep in mind these four tips:

1. Be able to describe your home. (Were the walls plaster or drywall?
is the example Haines used in his interview). The easiest way to do
this is to have photos or even video of your house, plus photos/receipts
for your major personal property. If you’re currently sitting home safe
and secure, take time to make this “housing inventory” — and put it
somewhere outside your home, maybe your office or your sister’s house,
for safekeeping. If you have just suffered a tragedy, try to describe
what your house looked like, in as much detail as possible, as soon as
possible after the fact.

2. Negotiate for less depreciation on big-ticket items. A United
Policyholders memo written for victims of Arizona wildfires has noted
that insurance companies argue, of course, that your sofa and coffee
table were old and therefore had depreciated in value. Your strategy as a claimant, the memo argues, should be to check replacement costs at
standard (not discount) retailers, argue for less depreciation on
big-ticket items, and negotiate depreciation on a case-by-case basis.
“The furniture in your guest room should be less depreciated than the
furniture in your master bedroom because it was used less and was in
better shape,” the report notes. Items like antiques, fine art, and
light fixtures are “timeless” and don’t depreciate at all.

3. Don’t use an unlicensed contractor. Get someone who is licensed
and bonded. You can usually check a contractor’s license through your
Department of State — or go to this reference map to see what state
agency you need to call to make sure that your contractor is licensed.
And, for heavens sake, don’t sign anything without reading it twice.

4. Pay attention to the insurance payout called ALE — “additional
living expenses.” This is the category where your insurance company pays
for you to rent a new home until your house is built, or to stay in a
hotel. If you’re a current homeowner reviewing your insurance policy,
you want to make sure you have decent ALE coverage. If you’re filing a
claim, “the manner in which the insurer handles the ALE claim for
resolution of all claims connected with the loss,” Helen Johnson Alford
and Gabrielle Reese Pringle note in an article called “The Insurance
Ounce of Prevention” in FDCC Quarterly. In other words, you’ll get a
pretty good idea of how hard the company will fight you on the claim
when you see how hard they fight you on the rental.