How to ensure coverage will actually cover disaster?

[Mary M.]

The recent California wild/urban fires, the destruction of 15,000 homes,  and the horror stories on insureds not getting paid enough to rebuild, have me wondering: 

How do we ensure that our coverage will do what we think it will in times of need? 

Will my policy actually pay to rebuild if there is a fire? (Or insert disaster of choice) , how can I check? What do i look for in my policy? 

What tools can a consumer/invester use to ensure they will be protected if disiaster strikes? 

Are there insurance companies that are better than others? 

I am hoping this thread can be used to help educate us on how to ensure we are covered. 

[Timothy W.]

Hi Mary,

After about a decade and a half and 3,000+ claims working for insurance companies, the answer is you have to watch three key things when buying a policy.  Percentage based deductibles, valuation clauses and other structures coverage.  Of course there's more but these are the three biggies.  Generally contents coverage is half of what your coverage on your main structure is so that's generally easy to figure out.  

Percentage deductibles - these are evil.  What always gets people is the percentage based deductible for a certain type of loss.  I.E. - $1,000 for normal losses but 7% of the value of the structure for hurricane losses.  Not many people are sitting on cash reserves of 7% of the value of their home so this one can hurt bad.

Second you want to watch those valuation clauses for multiple reasons.  First - if you have a coinsurance agreement, that means you are agreeing with your insurance company to insure the property for 80 or 90% of the REPLACEMENT cost of the structure above the foundation line.  If they determine that you have been insuring it for less than that, you can get dinged on your claims payout based on the percentage you underinsured the property.  I.E.  if you have an 80% coinsurance agreement and only insure it for 70% of the REPLACEMENT cost, your claims payment gets dinged 10%.  You can avoid this by having an "agreed cost" provision in the policy or by having a replacement cost valuation done.  Still, you may have to argue that replacement cost valuation at claim time, especially if it was done years ago and the price of building materials has changed.  Second, you want to watch that valuation clause to make sure the insurance company isn't overcharging you by insuring your property at too high a value.  I've seen this first hand many times where someone used a bad valuation or a market value rather than a replacement cost value and ended up insuring a 220k home for close to 300k.  That matters to the tune of thousands in premium over time.  Third, you want to watch that valuation clause because if you get dinged with one of those percentage based deductibles - you really get reamed.  That 220k house I was talking about that was insured for 300k.  On a 7% deductible it's a $21,000 deductible on the 300k valuation but a $15,400 on a 220k valuation.  That's a difference of $5,600.00 in deductibles.

Finally you want to watch the "other structures" coverage.  This one usually hurts because a lot of policies have a standard clause where the limit of "other structures" coverage is 10% of the limit on the house.  I.E.  400k house means 40k in limits for the garage, sheds and fences (yeah I know, the carrier denied your friend's but a fence is a structure).  How many people do you know anymore that have a 400k house and only a 40k garage?  Maybe in the 50's when the garage was little more than a wooden box for the car but these days a garage is a man cave/game room/Chery's she shed that is finished out sometimes as nice as the house.  However, you aren't going to get paid more than that limit no matter what kind of loss you have.

Anyway, that's the things to watch out for on the buying side of insurance.  On the claiming side of things, I've left the insurance carrier side of the business and now work on the public adjusting side, meaning I represent the homeowner's claim to the insurance carrier and negotiate it on their behalf.  If you're interested in some negotiating techniques on that side of the business, let me know.  I have to caveat that with I am an advocate for the homeowner now, so my opinion will be biased that way.  Also, I only operate in Florida so you would need to check with a professional in your state to see if it works there.  Let me know though if you'd like to know a bit of what I would do on my claim.

Tim