Home Insurance When You Buy in Silicon Valley: Earthquake, Flood, Wildfire and Lender Rules

Homeowners insurance used to be a checkbox near the end of escrow. In California today it’s worth lining up early, while you can still walk away. Standard policies here leave out earthquake and flood, lenders have their own rules, and wildfire risk has changed who will write a policy. Here’s what buyers in Santa Clara County, San Mateo County and San Francisco should know, from the California Department of Insurance and the other agencies involved.

What your lender will require

For loans sold to Fannie Mae, coverage must pay replacement cost, except for roofs, and the deductible can’t exceed 5% of the coverage, counting any separate wildfire or wind deductible. A condo owner’s unit policy can carry a deductible of up to 5% or $2,500, whichever is greater. Ask your lender for its exact requirements before you shop.

Earthquake: a separate policy

• Standard homeowners policies exclude earthquake damage, but fire that follows an earthquake is covered.
• Insurers must offer earthquake coverage, and re-offer it every other year.
• California Earthquake Authority policies are sold through participating home insurers. Deductibles run from 5% to 25%; homes insured for more than $1 million, and pre-1980 raised-foundation houses that haven’t been retrofitted, start at 15%.
• Retrofits can earn discounts of up to 25%, so ask the seller whether the house has been bolted and braced.

Flood: check the map

• Lenders require flood insurance for homes in a FEMA Special Flood Hazard Area.
• National Flood Insurance Program coverage normally starts after a 30-day wait, with no wait when it’s bought at loan closing.
• Limits are $250,000 for the building and $100,000 for contents. Most rate increases are capped at 18% a year.

If regular insurers say no: the FAIR Plan

The California FAIR Plan is the insurer of last resort. Its dwelling policy covers named perils only: fire, lightning, internal explosion and smoke, with vandalism as an option. It doesn’t cover liability, theft, water damage or the cost of living elsewhere after a loss, so buyers pair it with a separate difference-in-conditions policy. You apply through a FAIR Plan-registered broker, and residential policies top out at $3 million per location.

Lower your wildfire premium

Under the state’s Safer from Wildfires rules, insurers, including the FAIR Plan, must give discounts for steps such as a Class A roof, a 5-foot ember-resistant zone around the house, ember- and fire-resistant vents, dual-pane windows or shutters, enclosed eaves, cleared space under decks and defensible space. Insurers must also tell you your wildfire risk score within 15 days of your application, and you can appeal it.

Know your rights

• An insurer must give at least 75 days’ notice before it declines to renew your policy.
• After a declared wildfire emergency, insurers can’t nonrenew homes in ZIP codes in or next to the fire perimeter for a year.
• The Department of Insurance’s hotline, 1-800-927-4357, and its online premium and coverage comparison tools can help you shop.

Plan it with us

Our Insurance Lab walks through earthquake, flood, wildfire and lender rules for a specific house, and the Disclosure Decoder shows where hazard zones appear in the seller’s disclosures. Book quotes early in your inspection period, before you remove contingencies.

Buying soon? Call the Boyenga Team at (408) 373-1660 or (650) 383-8606. Commissions are negotiable, and we offer bundled services, so ask us what’s included.