Homeowners Insurance and Disasters

Homeowners Insurance is a “package” policy that covers both property and liability claims.

• Property claims are made when loss or damage occurs to your home or personal possessions. This coverage extends to possessions that you carry for personal use when you travel.
• Liability claims arise when someone else suffers a bodily injury or damage to their property because of something you did or did not do. Liability claims may result in a lawsuit against you.

There are six basic types of homeowners coverage that are designed to provide varying amounts of protection. Different insurance companies may give them different titles, but the perils they insure are basically the same.

1. The Basic Form protects your home and personal property such as furniture, carpeting, and personal belongings. The policy covers damage due to fire or lightning, removal of property endangered by peril, windstorm or hail, vandalism or malicious mischief, theft, damage from vehicles and aircraft, explosion, riot or civil commotion, glass breakage, and comprehensive liability. 

2. Along with benefits provided by the Basic Form, the Broad Form insures your home and personal property against building collapse, freezing of or accidental discharge of water or steam from within plumbing, heating/air conditioning systems, domestic appliances, falling objects, the weight of ice, snow or sleet and rupture or bursting of hot water heating systems. It also provides comprehensive personal liability coverage.

3. The Special Form covers your home against “all risks” except for certain specified exclusions, such as floods and earthquakes. This policy covers other structures (such as a detached garage) and all perils covered in the Broad Form, damage to or loss of personal property, and comprehensive liability.

4. The Tenants Policy is a Broad Form policy that supplies coverage for personal property and liability. This policy provides no coverage for the dwelling.

5. The Comprehensive Form insures a dwelling and personal property against all risks except certain specified perils such as floods and earthquakes. This is often the most expensive homeowners policy because it covers so many potential losses.

6. Special Condominium Coverage is designed for condominium unit owners and is not presently offered by all insurance companies. It provides the basic coverage offered in the Tenants Form and provides special protection needed by owners of condominium units. It insures only the interior of the dwelling, not the structure itself.

When deciding which form is right for you, be aware that there are some properties and perils that are excluded from most homeowners policies.

• Animals, birds, fish, automobiles, and business property that are away from the covered premises are not covered by most homeowners policies. Loss and damage caused by flood, surface water, water that backs up through sewers or drains, earth movement, nuclear damage, and war are not covered. In some instances, you can purchase additional coverage for excluded items.

Personal liability and medical payments do not apply to the operation or ownership of any aircraft, automobile, recreational motor vehicle, watercraft powered by more than a 50-horsepower motor, or to bodily injury or physical damage caused by an intentional act of the insured.

1. Floods. Flood damage is excluded under standard homeowners and renters insurance policies. Separate flood insurance coverage, however, is available for both homeowners and renters as a separate policy both from the National Flood Insurance Program (NFIP) and from a few private insurers. 
2. Earthquakes. Earthquake coverage is available from most insurance companies as a separate policy or an endorsement to your homeowners or renters policy. 
3. Maintenance damage. It is your responsibility to maintain your home and take reasonable precautions to protect your home from damage. Your insurance policy will not cover damage due to lack of maintenance, mold, or infestation from termites or other pests.
4. Sewer Backup. Sewer backups are not covered under a typical homeowners insurance policy, nor are they covered by flood insurance. This type of coverage must be purchased either as a separate product or as an endorsement of a homeowners policy, usually at a nominal cost. 

The settlement amount the insurance company offers, of course, differs with each situation. However, it helps to know the two basic ways to value your property.

• Actual Cash Value is the replacement cost of the item minus depreciation. For example, if a new television set costs $2,000 and your 7-year-old television set is damaged in a fire, you may end up receiving only $1,200 because of the depreciation of your television’s value over time.

• Replacement Coverage is the cost of replacing an item without deducting for depreciation. Most policies cover replacement costs for damage to the structure. A replacement cost policy pays for the repair or replacement of damaged property with materials of the same kind or quality. For example, if the current cost of a television similar to the one you bought seven years ago is $2,000, you will receive the full $2,000. Most policies require you to actually replace the item in order to receive reimbursement.

Check your policy to see which kind of coverage you currently have. If you have actual cash value and would prefer replacement coverage, it may be added to your policy. 

An extended or guaranteed replacement cost is a type of policy that determines the amount of settlement you get from an insurance company for disaster damages. 

If your home is damaged beyond repair, a typical homeowners policy will pay to replace it up to the limits of the policy. If the value of your insurance policy has kept up with increases in local building costs, a similar dwelling can generally be built for an amount within the policy limits.

With an extended replacement cost policy your insurer will pay a certain percentage over the limit to rebuild your home - 20 percent or more, depending on the insurer - so that if building costs go up unexpectedly, you will have extra funds to cover the bill. A few insurance companies offer a guaranteed replacement cost policy that pays whatever it costs to rebuild your home as it was before the disaster. But neither type of policy will pay for more expensive materials than those that were used in the structure that was destroyed.

Check with your insurance company to find out if there is a hurricane deductible written into your policy. There is a trend among insurance companies in Louisiana to apply a hurricane deductible to homeowners policies due to the frequency of storms in our state. For example, a two percent hurricane deductible would require you to pay up to two percent of the insured value of your home instead of the usual deductible you pay when you have other types of losses. When considering the purchase of a policy, keep in mind that most companies restrict the sale of insurance once a hurricane or tropical storm is approaching.

Most policies limit the amount of reimbursement for valuable items, such as jewelry, furs, silverware, guns, antiques, and computer equipment. If you have some particularly valuable items in these categories, you may need to purchase additional coverage. This type of coverage is usually not expensive and is based on the value of the item being insured. Contact your insurance company or producer for more information about valuable item coverage.

A personal liability, or umbrella, the policy pays liability limits above those you can get on your homeowners or other basic liability policy. If you are thinking of buying a personal liability policy, begin by finding out the maximum amount of personal liability your homeowners policy provides. Make sure you coordinate the liability limits so that the umbrella policy covers any liability claim in excess of the amount your basic policy will pay, up to the maximum limits of the policy.

Most insurance policies provide adequate coverage because they include an inflation-guard clause to keep up with increases in local building costs. If you have replacement cost coverage, your insurance company will pay the full cost of repairing or replacing the damaged structure with a building of “like kind and quality." In other words, if you were adequately insured and lived in a three-bedroom ranch before the disaster, your insurance company would pay to build a similar three-bedroom ranch.

Most insurance companies recommend that a home be insured for 100 percent of replacement cost so that you have enough money to rebuild if your home is totally destroyed.

You may not be fully covered, however, if you have made significant improvements on your house, such as enclosing a porch to create another room or expanding your kitchen, without informing your insurance company of the changes at the time.

If you can't live in your home because of the damage, your insurance company will advance you money to pay for reasonable additional living expenses. The amount available to pay for such expenses is generally equal to 20 percent of the insurance on your home. This amount is in addition to the money for repairs or to rebuild your home. Some insurance companies pay more than 20 percent. Others limit additional living expenses to the amount spent during a certain period of time.

Among the items typically covered are eating out, rent, telephone or utility installation costs in a temporary residence, and extra transportation costs. Insurance policies often discuss additional living expenses under the heading loss of use.

If your home was destroyed, you have several options.

• You can rebuild a new home on the same site.
• Depending on state law, you can sell the land and build or buy a house in a different place, even in another state.
• You can decide that you would rather rent.

If you decide not to rebuild, the settlement amount depends on state law, what the courts have said about this matter, and the kind of policy you have. Find out from your insurance agent or company representative what the settlement amount will be based on.

Concerning repairs, if you downgrade, for example, replace an expensive wood floor with one using a cheaper product, you are not entitled to the difference in cash.

Your insurance company provides an adjuster at no charge. You also may be contacted by adjusters who have no relationship with your insurance company and charge a fee for their services. They are known as public adjusters. If you decide to use a public adjuster to help you in settling your claim, this service could cost you as much as 15 percent of the total value of your settlement. Sometimes after a disaster, the percentage that public adjusters may charge is set by the insurance department. If you do decide to use a public adjuster, first check references and qualifications by contacting the Better Business Bureau and your state insurance department. Also, contact the National Association of Public Insurance Adjusters or the National Association of Independent Insurance Adjusters.

Disasters can make enormous demands on insurance company personnel. Sometimes after a major disaster, state officials ask insurance company adjusters to see everyone who has filed a claim before a certain date. When there are a huge number of claims, the deadline may force some to make a rough first estimate. If the first evaluation is not complete, set up an appointment for a second visit. The first check you get from your insurance company is often an advance. If you're offered an on-the-spot settlement, you can accept the check right away. Later on, if you find other damage, you can “reopen" the claim and file for an additional amount.

Most policies require claims to be filed within one year from the date of the disaster.

Some insurance companies may require you to fill out and sign a proof of loss form. This formal statement provides details of your losses and the amount of money you're claiming and acts as a legal record. Some companies waive this requirement after a disaster if you've met with the adjuster, especially if your claim is not complicated.

The choice of repair firms is yours. If your home was adequately insured, you won't have to settle for anything less than you had before the disaster. Be sure the contractor is giving you the same quality materials. Don't get permanent repairs done until after the adjuster has approved the price. If you've received bids, show them to the adjuster. If the adjuster agrees with one of your bids, then the repair process can begin. If the bids are too high, ask the adjuster to negotiate a better price with the contractor. Adjusters may also recommend firms that they have worked with before. Some insurance companies even guarantee the work of firms they recommend, but such programs are not available everywhere. Make sure contractors get the proper building permits.

If you and the insurer’s adjuster can't agree on a settlement amount, contact your agent or your insurance company's claim department manager. Make sure you have figures to back up your claim for more money. If you and your insurance company still disagree, your policy allows for an independent appraisal of the loss. In this case, both you and your insurance company hire independent appraisers who choose a mediator. The decision of any two of these three people is binding. You and your insurance company each pay for your appraiser and share the other costs. However, disputes rarely get to this stage.

Some insurance companies may offer a slightly different way of settling a dispute called arbitration. When settlement differences are arbitrated, a neutral arbiter hears the arguments of both sides and then makes a final decision.

When both the dwelling and the contents of your home are damaged, you generally get two separate checks from your insurance company. If your home is mortgaged, the check for home repairs will generally be made out to you and the mortgage lender. As a condition of granting a mortgage, lenders usually require that they are named in the homeowners policy and that they are a party to any insurance payments related to the structure. The lender gets equal rights to the insurance check to ensure that the necessary repairs are made to the property in which it has a significant financial interest. This means that the mortgage company or bank will have to endorse the check. Lenders generally put the money in an escrow account and pay for the repairs as the work is completed.

You should show the mortgage lender your contractor's bid and say how much the contractor wants up front to start the job. Your mortgage company may want to inspect the finished job before releasing the funds for payment. If you don't get a separate check from your insurance company for the contents of your home and other expenses, the lender should release the insurance payments that don't relate to the dwelling. It should also release funds that exceed the balance of the mortgage. State bank regulators often publish guidelines for banks to follow after a major disaster. Contact state regulatory offices to find out what these guidelines are.

Some construction firms want you to sign a direction to pay form that allows your insurance company to pay the firm directly. The firm then will bill your insurance company directly and attach the form you signed. Make certain that you're completely satisfied with the repair work and that the job has been completed before signing any forms.

If you have a replacement cost policy for your personal possessions, you normally need to replace the damaged items before your insurance company will pay. If you decide not to replace some items, you will be paid their actual cash value. Your insurance company will generally allow you several months from the date of the cash value payment to replace the items and collect full replacement cost. Find out how many months you are allowed. Some insurance companies supply lists of vendors that can help replace your property. Some companies may supply some replacement items themselves.