The Type of Policy is one factor in determining the amount of a settlement
Replacement Cost and Actual Cash Value: Replacement cost policies provides you with the dollar amount needed to replace a damaged item with one of similar kind and quality without deducting for depreciation (the decrease in value due to age, wear and tear, and other factors). Actual cash value policies pay the amount needed to replace the item minus depreciation.
Suppose, for example, a tree fell through the roof onto your eight-year-old television set. With a replacement cost policy, the insurance company would pay to replace the old TV with a new one. If you had an actual cash value policy, the company would pay only a part of the cost of a new television because a TV that has been used for eight years is worth less than its original cost.
Extended and Guaranteed Replacement Cost: If your home is damaged beyond repair, a typical homeownerís 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.
Mobile Home, Stated Amount: If you own a mobile home, you may have a stated amount policy. With this policy, the maximum amount you receive if your home is destroyed is the sum you agreed to when the policy was issued. If you opt for the stated amount, update your policy annually to make sure that the amount will cover the cost of replacing your mobile home. Check with local mobile home dealers to find out what similar homes now sell for.
Another factor is the Policy limits
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 ďlike 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 dwelling 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.
Temporary living expenses
If you canít 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.
Compliance with current building codes: Building codes require structures to be built to certain minimum standards. In areas likely to be hit by hurricanes, for example, buildings must be able to withstand high winds. If your home was damaged and it was not in compliance with current local building codes, you may have to rebuild the damaged sections according to current codes.
In some cases, complying with the code may require a change in design or building materials and may cost more. Generally, homeowners insurance policies wonít pay for these extra costs, but insurance companies offer an endorsement that pays a specified amount toward such changes. (An endorsement is an addition to an insurance policy that changes what the policy covers.) Information concerning this coverage is found under ordinance or law in the Section I exclusion part of your policy.
The use of public adjusters: 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 Independent Insurance Adjusters.
Compensation for Damage
Vehicles: If your car was damaged and you have comprehensive coverage in your auto insurance policy, contact your auto insurance company. If your car has been so badly damaged that itís not worth repairing, you will receive a check for the carís actual cash value -- what it would have been worth if it had been sold just before the disaster.
Trees and shrubbery: Most insurance companies will pay up to $500 for the removal of trees or shrubs that have fallen on your home. They will also pay for damage caused to insured structures and their contents up to policy limits, but they wonít pay to remove trees that have fallen causing a mess in your yard.
Water: While homeownerís policies donít cover flood damage, they cover other kinds of water damage. For example, they will generally pay for damage from rain coming through a hole in the roof or a broken window as long as the hole was caused by a hurricane or other disaster covered by the policy. If there is water damage, check with your agent or insurance company representative as to whether it is covered.
The Payment Process
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 youíre offered an on-the-spot settlement, you can accept the check right away. Later on, if you find other damage, you can ďreopen" 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 youíre claiming and acts as a legal record. Some companies waive this requirement after a disaster if youíve 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 wonít have to settle for anything less than you had before the disaster. Be sure the contractor is giving you the same quality materials. Donít get permanent repairs done until after the adjuster has approved the price. If youíve 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 contactors get the proper building permits.
If you canít reach an agreement with your insurance company: If you and the insurerís adjuster canít agree on a settlement amount, contact your agent or your insurance companyís 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.
How you receive the money: 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 has a mortgage, 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 contractorís 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 donít 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 donít 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.
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.
NOTE: The answers to coverage questions are primarily based on ISO forms generally used in Florida by most companies. However, please keep in mind that all companiesí forms are NOT necessarily the same. Some companies may provide broader coverage and some may be more restrictive.
IN ALL CASES, THE CONSUMER MUST REFER TO HIS OR HER OWN POLICY FOR SPECIFIC COVERAGE INFORMATION.
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