why homeowners’ insurance may not be enough
—understanding the insurance crisis facing Los Angeles families after the 2025 wildfires
Imagine losing your home, only to find that your insurance barely covers half of what you need to rebuild. This reality is facing many of the homeowners affected by the Los Angeles wildfires. Even before the fires in 2025, insurance companies had scaled back or shut down operations in California, citing wildfire risk. Flash forward to today where many homeowners are now left without adequate insurance or any insurance at all.
The Problem With Insurance
The insurance crisis highlights the inequity facing Los Angeles homeowners. In a report from AP News, two next-door neighbors in Altadena experienced wildly different outcomes after they both lost their homes in the Eaton fire:
One homeowner has already received nearly a million dollars from her insurance; she plans to rebuild and is searching for contractors.
The other homeowner had to switch to the California Fair Access to Insurance Requirements Plan — also known as the FAIR Plan — after his insurance company declined to renew his policy in the year prior to the fire. This person paid more in premiums but received half the coverage as his neighbor with private insurance.
What is the FAIR Plan?
Stories like the Altadena neighbors have become far too common in California. Even homeowners who always paid their premiums on time for years were dropped by their private insurance, which led them to the FAIR Plan.
The FAIR Plan provides basic coverage at a high premium. It accepts homeowners who cannot obtain private insurance from a traditional carrier.
While the average private homeowners insurance annual cost is $1460, premiums for the FAIR Plan are around $3200 per year.
The FAIR Plan’s higher premiums do not mean better coverage. The Altadena homeowner with the FAIR Plan paid more in premiums but had a maximum payout of $686,000 (vs. the homeowner with private insurance who can receive up to $1.5 million to rebuild her home).
How much you receive depends on what is included in your insurance policy.
What’s in a Homeowners Insurance Policy?
Homeowners insurance policies can include:
Dwelling coverage – for the house itself
Other structures on the property – such as a garage
Personal property – the contents of your home or personal belongings
Loss of use – living expenses if your home is damaged
Personal liability – coverage in the case of injury to others
Medical payments – for expenses if someone is injured on your property
The Altadena homeowner who has already received an insurance payout had what is called comprehensive home insurance. She had coverage for her home (dwelling coverage) and personal property, as well as money for living expenses while displaced (loss of use).
Actual Cash Value vs. Replacement Cost
Comprehensive insurance, also called “all risk” coverage, is the most common type of home insurance. Both comprehensive insurance and the FAIR Plan provide coverage based on either the Actual Cash Value or the Replacement Cost.
The difference between these policies matters a lot. For example, if your couch is destroyed in a fire, actual cash value means you will be reimbursed what it was worth when it was damaged. Replacement cost means your insurance will help you buy a brand new couch.
Actual cash value policies take into account the depreciated value of what was lost, which can limit payouts. Replacement cost does not consider depreciation. Replacement cost coverage is more ideal than actual cash value plans because you’re likely to get a larger payout.
Other Insurance Terms to Know
Other terms to be aware of when it comes to homeowner’s insurance are the deductibles and limits. Most policies have a deductible you must meet before insurance starts paying for covered losses. “Limits” refer to the maximum amount your insurance will pay.
These details outline a harsh reality for many homeowners who weren’t able to afford enough insurance to rebuild. For instance, consider a homeowner who was underinsured for $300,000 - if this home has been paid off and lived in for over a decade, then $300,000 isn’t nearly enough to pay for its reconstruction, as the home property value is now over $1 million.
How Much Can You Expect From Payouts?
According to CoreLogic, losses from the Los Angeles wildfires are estimated to be between $35 and $45 billion. As of April 6, 2025, State Farm, California’s largest insurer, has paid out $2.75 billion across over 12,390 claims. Generally, it takes about two months to receive payment on a claim for a total loss on a home if you have an active insurance policy and can take up to six months if there is an investigation.
The amount you can expect from your insurance depends on what kind of policy you have and the amount of dwelling coverage included in your plan. The table below shows some average annual premiums per dwelling coverage amounts for private insurance plans:
| Dwelling Coverage | Average Premium (Annual) |
|---|---|
| $300,000 | $1,460 |
| $500,000 | $1,953 |
| $1,000,000 | $3,909 |
| $3,000,000 | $12,030 |
The more dwelling coverage you have, the higher the premium will be. Your payout will be the amount of covered damage minus your deductible. For instance, say you have $500,000 dwelling coverage and a $25,000 deductible. The maximum payout would be $475,000. Even if the damage exceeded $500,000, you would still only receive $475,000 because the policy limit is $500,000.
According to attorney Dennis Beaver, insurance companies are not trying to avoid paying claims. However, they will only pay out what is in your policy, so it is not useful to try to get more than your coverage allows. He also suggests reviewing your policy annually with your insurance broker.
What is Lotus Rising LA’s Role?
Policy limits and deductibles can leave big gaps for homeowners. Just because you have $500,000 in coverage does not guarantee that same amount in a payout. Additionally, some homeowners might have been priced out of obtaining coverage that will cover the entire cost of their home.
One reason Lotus Rising LA is focused on prefab and alternative construction housing is to help cover the gap between coverage and payouts for people who do not have adequate insurance coverage. By reducing rebuilding costs, Lotus Rising LA aims to make those limited insurance payouts stretch further in rebuilding homes. This will be even more critical as the risk of wildfires continues to grow, insurance companies limit coverage in CA, and insurance premiums increase for all.
References:
Allstate. (2024, February). Homeowners insurance replacement cost vs. actual cash value.
Beaver, D. (2025, January 16). How to deal with property insurance claims after wildfires.
Caldwell, W. (n.d.). California FAIR Plan vs. Private Wildfire Insurance.
California Department of Insurance. (2024, May). Residential Insurance: Homeowners and Renters.
CoreLogic. (2025, January 16). CoreLogic Estimates the Eaton and Palisades Fires are Causing Devastating Initial Property Losses Estimated to be Between $35 Billion to $35 Billion
Davis, M. (2025, January 9). Wildfire Risk Highest in California, Florida, Texas. LendingTree.
Darmiento, L. & Lin, S. (2025, January 12). First, they lost their home insurance. Then, L.A. fires consumed their homes. Los Angeles Times.
Fitzpatrick, M. (2025, January 9). California Homeowners Insurance Calculator: Free Cost Estimator (2025). MoneyGeek.
Ho, S., & Nguyen, T. (2025, February 5). LA neighbors have vastly different post-wildfire rebuilding options due to insurance crisis. AP News.
Law, Z. (2025, January 22). California homeowners insurance: Current state of the market and implications of the Los Angeles wildfires. Milliman.
Nawaz, A., & Merchant, A. (2025, January 14). What the California wildfire destruction means for homeowners and insurance. PBS News Hour.
State Farm. (2025, April 7). State Farm is here to help California customers impacted by wildfires.
TD Insurance. What is Home Insurance?
Walker, Amanda. (2025, April 15). What’s so fab about prefab housing? An explainer. Lotus Rising LA.
Disclaimer: The content shared in our blog is for informational purposes only and should not be considered legal, medical, or financial advice. Please consult with a qualified professional for guidance specific to your situation.
