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Insurance Tips for Fire Recovery Planning
In my 18 years of being an insurance agent, I have walked many clients through fire claims. I never dreamed 6 years ago that my own home would burn down in a total loss. Going through the total loss process myself has provided me a deeper understanding of the process and has allowed me to offer some helpful tips.
In the wake of this week’s massive forest fires and dense smoke I wanted to provide a few tips for homeowners and renters who have evacuated or been affected by fire, smoke, and ash damage.
- Call your insurance company to check your policy. Let your company know if you have evacuated. Coverage is typically available for fire, smoke, and ash damage to your home and personal property.
- Ask about your auto coverage, too. You need comprehensive coverage on your auto policy to cover fire, smoke, and ash damage, no matter where your vehicle is located at time of the loss.
- If you had to evacuate, save your receipts and, when it is safe, let your insurance company know you evacuated. Your homeowner policy may pay for expenses such as lodging, food, and even pet boarding due to a mandatory evacuation. Be sure to check with your insurance company to confirm you have Loss of Use coverage.
- If you have not evacuated and it is safe to do so, make a quick home inventory by taking photos or video of each room in your home. Pay close attention to what is on the walls and in drawers and closets. Don’t forget storage areas such as the attic and garage.
- If your personal belongings are damaged, the insurance company will request a list of items that are damaged or destroyed. Take some time to work on your home inventory list now. Look through your photos and videos to help recall personal items. Be sure to look for smaller items, such as jewelry. To the best of your ability, write down the age, original cost, and replacement cost of each item. I used a big excel spreadsheet with tabs for each room to keep track. This is a massive undertaking during a very stressful time but will help you in the long run a lot. My carrier actually made a master list for me but many carriers do not do this.
You will need to keep track of items as you replace them. The carrier will pay a lump sum to you for your damaged belongings at a “cash value” or “depreciated value” at the time of loss. If you have replacement cost coverage, they will give you the full amount of the replaced item after you replace it and provide a receipt. Tracking all of this will be key in keeping your sanity.
- DO NOT try to wash and try clothing, blankets or bedding. As soon as you dry it, the smoke will forever be in the material. Have a restoration company clean it for you.
- Also, walk through with the restoration company and tell them what you want cleaned and what you don’t want to salvage. Ultimately you are using up insurance dollars to have things cleaned and you may rather use the money for other needs.
- Plastic items like TV’s and computers may seem fine but smoke destroys them. They will start to get sticky and stop working in a short amount of time.
I always advise client to take photos of their home inventory and save to the cloud or forward to my agency for safekeeping. This makes total loss claims so much easier to document. Of-course annual policy reviews are important too. We agents have no idea how to best insure you if you don’t tell us.
Stay safe and reach out to us if we can be of service.
WHAT ARE THE RISKS AND ADVANTAGES OF INSURING YOUR COMMERICAL PROPERTY WITH A 100% CO-INSURANCE CLAUSE?
A majority of property insurance policies contain a co-insurance provision. A coinsurance provision requires the insured to insure the covered property to a specified percentage of the full replacement cost value, typically 80, 90 or 100 percent. Now, a higher co-insurance clause will offer a lower rate, but what do you really gain by this?
Insurance companies use co-insurance provisions to avoid inequity and to encourage insureds to carry a reasonable amount of insurance in relation to the replacement value (or actual cash value, depending on which basis the policy is written) of their property.
Co-Insurance essentially penalizes the insured for loss recovery if the limit of insurance purchased by the insured is not at least equal to the specified percentage (80, 90 or 100 percent) agreed to in their contract for insurance.
To further confuse matters, there are several building coverages options in the marketplace and some options may not be available based on the age of the property and/or lack of updates.
Property coverage options
Guaranteed replacement cost coverage guarantees your property will be rebuilt.
Extended replacement cost coverage usually provides up to 125% of the building limit.
Replacement cost coverage pays to rebuild but only to the limit listed on the policy.
Functional replacement cost provides coverage for “like” but lesser quality products. This is typically an option for older brick or ornate buildings that have had some updating.
Actual cash value is a depreciated valuation which pays what the building is worth “as is”. This is usually the only option for older properties without updates for wiring, plumbing and heating and/or other higher risk properties. This valuation is difficult to estimate without a professional appraisal.
Co-insurance is secondary to the above coverage options, meaning you will have both a coverage type and a co-insurance clause.
The way you will know what coverage you have is to reference your policy “declarations page”. You should be able to find it fairly easily a few pages into your policy and it will list building, building ordinance, loss of income, and deductibles likely all together.
To better understand the financial repercussions for under insuring your building see the below examples of claims payouts:
Scenario 1 – Major fire, resulting a total loss claim
$1,000,000 Building Replacement Cost Coverage
80% Co-Insurance Clause
At the time of loss, the actual replacement cost of the building is $1,250,000. You are under insured by 25% triggering a co-insurance penalty;
Claim payout is as follows:
$1,000,000 – (less 25% under insured penalty of $250,000) = $750,000 payout. You are short $500,000 + your deductible to repair the building.
Scenario 2 – Small 2-unit fire, resulting a $550,000 loss
$1,000,000 Building Replacement Cost Coverage
100% Co-Insurance Clause
At the time of loss, the actual replacement cost of the building is $1,100,000. You are under insured by 10% triggering a co-insurance penalty;
Claim payout is as follows:
$550,000 – (less 10% under insured penalty of $55,000) = $495,000 payout. You are short $55,000 + your deductible to building the building.
As you can see in both examples, it can be very expensive to under insure your property. Further, the higher the co-insurance clause, the less room for calculation errors, increased building costs due to housing booms, tariffs on materials or even forest fires driving up the cost of wood.
My best advice: Insure your property to 100% of its replacement cost value, add extended replacement cost or guaranteed replacement cost riders if you qualify for them. If those options are not available to you, ask for an agreed value policy which should remove the co-insurance rider. Agreed value policies will not help with inflation or other increased building costs, however, you will not be penalized if your calculations are wrong.
Ask your agent to re-calculate the replacement costs for you at least every other year and certainly if you remodel your property, let your agent know. I would rather see people with more building and building ordinance coverages then low deductibles all day long. Some people think they are winning against the insurance company by not insuring their building fully and getting a lower premium, but come claim time, as you can see by these payout examples, this will be a big financial bite!
Remember that insurance is a contract in which, you are agreeing to specified coverage for an agreed amount of premium. This is your investment property and your contract with a company to help you mitigate the risk of loss.
This article was provided by Stacey A Scott Insurance Agency Inc. dba Madison Avenue Insurance Group in Woodinville, WA. For more information they can be reached at email@example.com or at www.madisonaveins.com
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