October 23, 2007 - If you have been watching the news over the past three days, you have certainly seen pictures of the more than 1,000 homes that have burned in the California fires. As big a tragedy as these losses are, the pictures only tell a part of the story. While a natural or man made disaster may destroy your home, mistakes when making a claim with your insurance company can lead to depleted bank accounts and ruined credit. This article is a primer to help victims of natural disasters avoid some of the pitfalls they will certainly encounter when going through the claims process.

Your Insurance Company Is Not Your Friend

This point cannot be stressed enough. Although you may like your insurance agent, and perhaps you've even had some good experience working with your insurance company on small claims in the past, the minute you file a major claim on your homeowner's policy it becomes an entirely new ballgame.  Even if you are being treated with courtesy and a smile, you need to understand that is the insurance company's job to protect their stockholders. To do this, they need to minimize the amount of money that they pay in claims.

The relationship between anyone who has lost or who has experienced significant damage to their property and their insurance company is adversarial in nature. If you are the person filing the claim, your aim is to recover as much of your loss as possible. At the same time, your insurance company is trying to pay you as little as they can.

Understanding the nature of this relationship and keeping it in mind throughout the claims process is critical to your financial wellbeing.

Know Your Policy

Knowing what's in your insurance policy is the only way to insure that you are compensated properly by your insurer. Homeowner's policies can be complicated so you may want to get some outside help to determine what you are entitled to.

The minimum homeowner's policy insures the fair market value of your home as it was built, but it also contains a number of exclusions. For instance, if you have a lot of art work in your home, it is probably not covered unless your policy contains a special clause giving you coverage.  This is something that you would have to pay extra for.

Unless your home is nearly new, the minimum policy will probably not cover the costs of rebuilding your home either. This is because building codes change over time. As mentioned previously, the minimum policy insures your home only as it was built; not with any required code upgrades. Some insurance policies do include "replacement cost coverage", code upgrades, or both. These types of policies do cost more but are well worth the expense.

Most homeowner's policies also include a clause covering additional living expenses (ALE). The purpose of ALE is to cover the additional expenses that come about as a part of a major loss. Things such as renting a new home, renting furniture, moving expenses in the event you are able to salvage some of your belongings, etc. But the amounts paid under these clauses can vary significantly. More restrictive policies may limit you to as little as $1,500, which won't even cover a single month of rent in many areas. Less restrictive policies may cover virtually all of your living expenses for a year or more. The only way to know for sure is to read your policy.

ALE coverage may prove to be the critical difference between having enough money to live and going bankrupt or ruining your credit while waiting for your insurance company to pay you. It's easy to forget that when someone loses their home in a fire or other disaster, they still have to pay the mortgage. Without ALE, it may become impossible to continue to pay that mortgage bill and then pay an additional amount to rent a new home.  

Inventory Your Losses

If you lose your home, the house isn't your only loss. The contents of the house are also valuable.

Most insurance companies will provide their customers with inventory lists that they can fill out. But most people don't keep these lists up to date. It should also be pointed out that just because you have a list of the things you own, that doesn't necessarily mean that your insurance company will believe you when you file your claim.

One of the best ways to establish what you actually own is through pictures. Video taping the contents of your house is fairly fast and easy. This kind of documentation should include pictures of the contents of closets and dresser drawers, as well as 360 degree views of each room in your house. Make sure you include the contents of your garage, basement and attic. It's very difficult for anyone to argue with pictures.

If you have already lost your home, and you don't have an inventory, you should try to assemble one from memory as soon as possible. If you don't have any pictures of the contents of your home, contact friends and family that may have taken pictures in your house and ask them for copies. Not only will this help you when working with your insurer, it may also jog your memory.

Hire a Public Adjuster

Hiring a public adjuster may very well be the best way to insure that you are compensated fully by your insurance company. It's a way for you to even the odds by getting a team of experienced insurance negotiators on your side.

Public adjusters typically don't charge any money up-front. Instead, they take a percentage - typically around 10% - of the amount they recover from insurers on your behalf. While 10% may seem like a lot of money, they are much more likely to get you the maximum benefits from your insurer. In a major loss, this usually more than makes up for amount you pay to the adjuster.

Public adjusters take a lot of the pressure off of disaster victims' shoulders. Instead of having to negotiate with your insurer directly, the adjuster does it for you. Instead of having to assemble the inventory of your house on your own, the adjuster will do that work.

Public adjusters will also be in a better position to advise you in the event there is a problem with your insurance company. Is it time to hire an attorney? Can you settle your claim for an amount that will pay off your old house and let you purchase a new one? Public adjusters can help with these types of questions.

The loss of a home is terrible experience. But not knowing what you are entitled to from your insurer can compound the tragedy by leaving you will little money and ruined credit.

by Jim Malmberg

Note: When posting a comment, please sign-in first if you want a response. If you are not registered, click here. Registration is easy and free.

Only registered users can write comments.
Please login or register.