Last Updated: October 29th, 2014
You're at a disadvantage when you have major house damage or a total loss of your home. You face a home insurance claims process that could easily stretch out for more than a year, require reams of paperwork and leave you mentally and physically exhausted.
Unless you've already run the gauntlet of a major home insurance claim, you don't know what to expect. We asked Ron Reitz, President of Quality Claims Management Corp. 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. He has nearly 17 years of experience in the insurance industry and is a licensed public insurance adjuster in nearly every state that has licensing regulations.
"Most people don't learn much about insurance until they have a loss," sums up Reitz.
Public adjusters work on behalf of policyholders to help people get all that they're entitled to from insurance claims. They 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. Find out more about how to hire a public insurance adjuster .
Here's what takes many people by surprise when they have large home insurance claims, whether it's due to fire or natural disasters.
A claim for a total loss of a house can cost less than rebuilding a damaged house.
New construction from scratch costs less per 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 damaged sections.
"When you start from scratch (new construction), you don't have to tie into existing construction -- some of which may be outdated, so you have a clean slate to start with," explains Reitz. Also, it's often more costly to bring your old house up to code than to start fresh.
If you have a mortgage, your insurance checks will be made out to 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 the check over to you.
Policyholders "have to endorse and send the check to the mortgage company, and it will sit in an escrow account until repairs are made," says Reitz. 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 constructions costs until the mortgage company verifies the repairs.
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 what you're entitled to if you later discover that not everything has been paid for.
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," says Reitz. The home insurance policy does not require the insured to execute a release, so why should you?
Don't let your insurance company replace your Pottery Barn stuff with Walmart 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 Walmart or Target.
"We battle back and forth," says Reitz. The insured is entitled to be paid for what he had — not a knock-off version of it.
Surprise! You're underinsured!
You've been paying your insurance premiums for decades, assuming that if disaster strikes you'll be covered. But homeowners often find they have less home insurance coverage than they need for things like these:
Rebuilding a house: If your coverage for your structure hasn't kept pace with
rising construction costs, you're underinsured.
Belongings: Many times people haven't purchased additional coverage for expensive items such as antiques, jewelry, electronics and firearms. A basic policy has a per-item cap on many of these things, often at $1,500.
Landscaping: A standard home insurance policy pays up to $500 per tree or shrub, up to a maximum amount.
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 your 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 may have no liability protection if you're sued for something that happens within your condo, like a slip-and-fall injury.
If you're evacuated, 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?" says Reitz. "You don't realize you have that coverage until you have a loss."
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 will not have a handle on how much tradespeople such as electricians or plumbers 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, in Reitz's opinion.
"The insurance company will bring in out-of-state adjusters who are probably not licensed in your state," observes Reitz. "They're not as familiar with local building codes. What we saw from the 2007 and 2009 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 if they are accustomed to handling total losses of $200,000."
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, later, when you replace the items, you need to submit your receipts to get the remainder due.
"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," says Reitz.
The value of hiring a public insurance adjuster
Hiring a public claims adjuster can put you on an even playing field with your insurance company. Your insurer may assign three different 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, says Reitz.
Public adjuster fees
Most public adjusters calculate their fees based on a percentage of your total claim, which gives them incentive to maximize your insurance payments. Fees vary across the country but, for example, an adjuster may charge 20 percent for a $20,000 to $30,000 loss and 10 percent to 12 percent for a loss over $100,000.
It's better to hire a public adjuster early in the process in order to streamline your claim. It's difficult for an adjuster to come in halfway or at the end of a claim and try to work backwards to assess the situation. An adjuster hired at the end of a claim to help squeeze out the remainder due could charge 25 percent because he still has to determine the value of the entire claim.
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