There's more to insurance than the policy
Check out part two of this post recounting how we turned tragedy to triumph.
I know a lot of people have posted pleas for help in the wake of hurricane Katrina and the people of New Orleans, the rest of Louisiana as well as Mississippi certainly need it but disaster is not limited to hurricanes, earthquakes and tornadoes. Tragedy can strike at any time and in much more personal ways.
The mass devastation wrought by the hurricane is an exception to the rule. Fire is by far the most likely disaster to befall someone. There is a residential fire every 77 seconds in the United States and 3,190 people were killed in 2004 in residential fires.
Insurance isnít cheap but it is extremely reasonable when you consider the alternative. Imagine losing your home and all your possessions without insurance. Where do you go and how do you begin again?
Having insurance is one thing and having the right kind of insurance is another. If you can afford it (and I canít imagine why you wouldnít be able) then you should have the best possible.
The commercials for any insurance company will try to make you feel good and convince you that your well being is important to them but the reality is that profit is more important than your well being and they will try to give you the minimum.
I speak from experience having lived through the tragedy of my girlfriend (now wife) losing a house to fire. We worked together to make sure the insurance company paid her the full amount she was entitled to. It was a struggle that we would never have won without the advice of someone who had been through the process.
Iíve read articles that are supposed to offer tips for preparing for and then for dealing with the insurance company but I would put money on the fact that these people have never been through it themselves. Now that doesnít mean that they arenít giving some good advice but they also probably arenít giving the best advice either.
One such article is here and it talks about hiring independent adjusters. Well since I donít have to answer to an editor, I will give you my opinion of independent adjusters. They are vultures who take an incredible amount of money that belongs to you without earning it. They are a scam and a rip-off. You can do this by yourself.
Fire is a devastating loss and I know that a lot of people simply canít deal with the procedures and red tape of the insurance company while grieving for their possessions, pets, home and possibly a loved one. But life does go on and if you donít want to be a victim a second time then you must focus on the task at hand and help yourself.
Preparation before a fire or other loss is essential. I say this in spite of the fact that I havenít done what Iím about to advocate even though Iíve been through the loss myself. We always think thereís enough time, and there is, until the day comes that there isnít.
Take the time now to inventory everything in your home. Try to get an accurate assessment of the worth of each item on your list and include as much information as possible such as the date of purchase and the store where it was bought. Trust me that this is a task best done before any tragedy, when you can actually look at the items and pull any records you may have. Take your time. Youíve waited this long whatís a few more days. Inventory one room every few days if thatís what it takes but get it done. I am Ė now.
This inventory should be kept someplace safe and away from your home. What good would this list do you if it burnt up in the same fire you made the list for?
The list documents the contents but when a fire or other disaster destroys your home, the insurance company will issue you two checks. One will cover the cost of your contents, the things on this list, and the other will cover the cost to rebuild your home.
Just like the inventory for your things, you should also have an inventory for your building materials. The insurance company only pays you for what you actually had in the home so if you had carpeting throughout they wonít pay for hardwood floors no matter how much you want them. That makes sense and sounds fair right? Well what if you had carpeting but it was covering hardwood floors? The insurance company may not know about the hardwood floors and unknowingly underpay you for your loss (they may do this knowingly as well but letís give them the benefit of the doubt).
I suggest you make a videotape of the contents of your home pointing out any building materials you feel are important such as the hardwood floors I mentioned above. This videotape should also be stored someplace other than your home - again for obvious reasons.
There will be things you simply canít know until youíre in the situation. For instance should a ceiling fan that you installed recently be included in contents or building material? Since itís hard wired into the house this would count toward the building material whereas a lamp that is attached to the wall but plugs in would be included in contents. Although this was the case in my situation insurance companiesí policies may vary.
The rest of this article will convey stories of our experience which was whatís called a total loss meaning that everything in the house including the house itself was completely destroyed. In some ways this is a good thing since there can be no argument over whether something is salvageable or not.
Even before the fire trucks left us there were independent adjusters trying to sign us up for their services. The fire chief warned us about signing anything too quickly and it was the best advice of the day. Donít sign up with an independent adjuster unless you are completely unable to deal with any aspect of life. An independent adjuster should be a last resort and at very least you should wait until you get your first offer from the insurance company before seeking additional help.
The adjusters that we spoke with wanted to be paid anywhere from 10-15% of the total claim we were paid. Most of their money would be made even if they did nothing to help us. For example if the insurance company offered us $125,000 the independent adjuster would get $12,500 without doing anything (and thatís based on the lowest percentage we were quoted). But he would probably be able to get us 20% more for a total of $150,000 giving him a payment of $15,000 or an increase of just $2,500. Who will work harder, the person who stands to gain $25,000 or the person who stands to gain $2,500? Sure theyíll be able to get you more than the initial offer but it probably wouldnít be much more than you could get with even minimal effort.
The independent adjuster shouldnít be confused with the insurance adjuster employed by your insurance company. You have no choice in dealing with this person and while they are sympathetic and skilled in dealing with people who have suffered so much, they still work for the insurance company and therefore certainly arenít going to pay any more than they must and would probably prefer to pay the least they can.
The first thing the adjuster will do is ask for a list of your contents with estimated values and ages of the items. You can see where the inventory I suggested you put together earlier would really come in handy now.
The next thing the insurance company adjuster will do is determine the size of your home and the materials used to build it. You donít have to be present for this and in my case the adjusted requested we not be there. We ignored this advice however just to have the peace of mind that he was being thorough.
At this point all you can do is wait for his estimate to arrive in the mail. This is a detailed document that goes room by room outlining the exact number of 2x4s needed to rebuild the walls, the amount of sheetrock and every other specific item you would need to rebuild. If youíve never seen a document like this it can be overwhelming and a lot of people would not have the energy to go over it as carefully as needed.
My wife and I went over this document very carefully and found serious errors and omissions that caused the estimate to be much lower than it should have been. Among the items left out of the estimate were all interior doors, a flight of stairs and a bathroom. Among the items that were wrong was the fact that we had hardwood floors in one bedroom that was covered with carpeting. It doesnít matter that we had carpeting, the insurance company has to pay to return your house to the exact condition it was before the loss. We also had marble tile in the master bathroom but the estimate only included ceramic tile.
When we responded to the insurance companies inadequate estimate they ignored it until we finally convinced them to meet with us. This was a typical stalling tactic but we werenít about to let ourselves become victims again.
We live in a litigious society and while I prefer the high ground sometimes it is necessary to file complaints or threaten lawsuits. In the case of the fire we were forced to file a complaint with the state insurance commission. This certainly got their attention and served its purpose by getting them to resume negotiations.
We were able to increase the building estimate from the original $126,000 to just under $165,000. Which brings me to an other important point. Read your policy carefully. While we were only insured for $145,000 for building there was a clause in the policy that allowed for a 15% increase. The insurance company never pointed that out to us and we would not have known unless we went over the policy very carefully.
What kind of insurance?
Another important aspect of the insurance game is understand what kind of insurance you have and what exactly it means. A basic choice you have to make is whether to get replacement cost. The alternative is a standard policy that will only pay for the depreciated value of an item. For example if you bought a television for $1000 and it was destroyed in a fire 5 years later the insurance company would give you some amount less than what it cost since it was 5 years old. But if you have replacement cost the idea is that youíll be paid the amount it would cost you to buy the latest version of that television.
Thatís the theory but in reality the insurance companies are smarter than that. Even if you have replacement cost coverage they will only give you the depreciated value and once you buy the new television and show them the receipt they will pay the difference. Thatís not so bad when there is only a few items but how do you do that for a house full of things, some of which were bought on vacation and simply arenít easily replaced?
I think this is the area you have to be most careful because while you certainly wouldnít want the insurance company cheating you out of any money, you also donít want to be dishonest. If however your total depreciated value equals or exceeds your coverage limit, they will pay the total and you wonít have to replace anything or show receipts.
This is a tricky proposition because if your depreciated value is equal to or higher than your coverage amount then you were underinsured. At the same time there are always things you have that you donít use anymore and probably donít plan on replacing. There is no reason however that you shouldnít get paid for the loss of that item so itís important to include every last item in your inventory, no matter how small or insignificant.
If youíve suffered a loss of some sort especially fire feel free to email me for any support I can offer. Iím not a professional but hopefully my experience will give you strength and the knowledge that you can succeed.
On a purely financial note check out my post on what we did with the money we received for the contents of the house.