Updated: 11/2/2010 9:00 AM ET|
9 secrets of home insurance claims
What you don't know about filing a homeowners insurance claim after serious damage can definitely hurt you. Don't get caught by these common surprises.
You're at a disadvantage when you have major house damage or a total loss of your home. You face a home insurance claim process that could easily stretch out for more than a year, require reams of paperwork and leave you exhausted.
Unless you've already run the gantlet of a major home insurance claim, you don't know what to expect. We asked Ron Reitz, the president of Quality Claims Management in San Diego, to give us an inside look at what, many times, is an eye-opening process for policyholders.
Reitz helps policyholders work through the insurance claim process and shows them how to recoup their losses. "Most people don't learn anything about insurance until they have a loss," Reitz says.
Public adjusters work on behalf of policyholders to help people get all they're entitled to from insurance claims. Adjusters help evaluate damage and rebuilding costs, track the flow of insurance payments and amounts due, and work with home insurance companies to expedite their clients' insurance claims.
Here is a look at many of the things that can take people by surprise when they have a large home insurance claim:
1. A claim for a total loss of a house can cost less than rebuilding a damaged house.
Construction from scratch costs less per square foot than construction for rebuilding. Often it's "easier" to fix your problem if your house is simply gone, rather than to try to repair the damaged sections of what's left.
"When you start from scratch, you don't have to incorporate changes that exist with the building, so you have a clean slate," Reitz says. Also, it's often more costly to retrofit your old house to prevailing code than to start fresh.
2. If you have a mortgage, your insurance checks will be made out to both you and your mortgage bank.
Your mortgage holder is likely listed as a "loss payee" on your home insurance policy, so payments for rebuilding are issued to both you and your lien holder. And don't expect your mortgage holder to sign over the check to you.
Policyholders "have to endorse and send the check to the mortgage company, and it will sit in escrow until repairs are made," Reitz says. Mortgage banks typically release the funds back to you in three installments over the course of your reconstruction. Mortgage companies want to be sure your property is repaired before releasing payment to you. As a result, you may have to advance your own money for construction costs until the mortgage company verifies the repairs.
3. Don't cash any insurance checks marked "full and final settlement."
In some states, such as California, it's illegal for an insurer to issue a check like this. You don't want to cut yourself off from any funds you'd be entitled to if you later discover that not everything has been paid for.
4. Don't sign a release on your home insurance claim.
This takes the home insurer off the hook for any future payments on your claim.
"Insurance companies ask the insured to do it when they think there's a problem or big dispute coming," Reitz says. The home insurance policy does not require the insured to execute a release, so why should you sign?
5. Don't let your insurance company replace your Pottery Barn stuff with Wal-Mart stuff.
The values of particular items are often disputed in home insurance claims. If you've bought expensive items, your insurance company may say it can replace them with very similar items from Wal-Mart or Target.
"We battle back and forth," Reitz says. The insured is entitled to be paid for what he had -- not a knockoff version of it.
6. Many condo owners have no idea that they need their own home insurance policies.
They think that the condo association's policy covers their property. However, the association's policy covers only common areas, typically up to the walls of the condo. If you want your own space and belongings protected, you need an HO-6 home insurance policy. Otherwise, all your belongings, furniture, appliances and cabinets are uninsured.
Without an HO-6, you also may have no liability protection if you're sued for something that happens within your condo, like a slip-and-fall injury.
7. If you're forced to evacuate, don't sleep at a shelter.
Your home insurance covers your "additional living expenses" if there's a mandatory evacuation, including hotels and food -- even additional transportation costs.
"Why sleep on a cot when you could go to a hotel?" Reitz asks. "You don't realize you have that coverage until you have a loss."
8. After a widespread disaster, insurance companies will bring in company adjusters from out of state who aren't familiar with local costs.
Adjusters from outside your area may not have a handle on how much electricians, plumbers or other workers charge, or how much it costs to rebuild a house. Often they will rely on a software program called Xactimate, which isn't very exact if you don't account for local costs.
"The insurance company will bring in out-of-state adjusters who are probably not licensed in the state," observes Reitz. "They're not as familiar with local building codes. What we saw from the 2007 fires in Southern California was that out-of-state adjusters can't comprehend that it will cost $800,000 or $1 million to rebuild someone's house. They can't comprehend local building values."
9. People regularly settle for less than the total cost of their damages because they are exhausted.
Especially near the end of a complicated claim, such as a total home loss, homeowners just want the process to be over.
Even if your policy entitles you to "replacement cost" of your belongings, home insurance companies will initially issue checks for your belongings' actual cash value. Then, once you've replace the items, you must submit your receipts to get the difference between the initial checks and what you actually paid for replacements.
"In reality, most people don't go back and submit receipts because they're so frustrated with the claim, they're done with it. They'll settle for less and close the claim and rebuild for less, and the insurance company knows this," Reitz says.
Hiring a public claims adjuster can put you on an even playing field with your insurance company. Your insurer may assign three adjusters to work on your claim: one for "additional living expenses," one for your personal property and one for the building portion of your claim. A public adjuster will be able to explain the process and work on your behalf handling the countless meetings, e-mails, phone calls and paper documents that flow for a large claim.
The insured can get on with daily life and leave the insurance adjusting to a professional, Reitz says.
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