Most people who own homes guard against financial calamity by buying insurance. Yet many people pay little attention to the kind of protection they have bought until a tree topples onto the roof.
“Too often, people just sit back and trust that their insurance company will be a good neighbor when disaster strikes,” said Ina De Long, founder of United Policyholders, a nonprofit company in Oakland, Calif., that seeks to educate consumers about insurance issues and help settle troublesome claims.
Homeowners often fail to understand-or even to read-the policy they have bought, she said. Result: They end up settling for less than they are entitled to or find themselves underinsured and unable to replace their loss.
Of the 2,229 complaints regarding homeowners’ insurance received last year by the Consumer Services Bureau of the New York State Department of Insurance, 60 percent were resolved in favor of the insurance company, said the bureau’s chief, Salvatore Castiglione.
“That wasn’t because people were trying to defraud the insurance company,” Castiglione said. “It was because people were not aware of what their insurance did and did not cover. Obviously, misunderstanding is a big issue here.”
Reports of such misunderstandings were rampant after such disasters as Hurricane Hugo in Florida, the Northridge earthquake in California, flooding along the Mississippi River and, more recently, flooding in Georgia and wildfires in the West.
Here is what consumers should know about the policy they buy, and how they should put it to use.
– Understand the limits: Review the policy yearly with the person who sold it, to determine whether it’s sufficient to cover any new purchases or home improvements, said Jeanne M. Salvatore, a spokeswoman for the Insurance Information Institute Inc., an information arm of the industry. “The time to do that is when life is moving along sweetly, not after you’ve experienced a traumatic loss.”
She added: “Ask the agent specific, common-sense questions, such as how much will I get if my TV is stolen? What will I get if my house burns to the ground? And expect specific answers. If the insurance company or agent is unwilling or unable to supply this information, switch to another company.”
Put any requests for changes or additions to the policy in writing, to avoid future disputes over coverage.
– Take responsibility: The onus is on the homeowner, not the insurance agent, to make sure coverage is adequate, said Kathleen F. O’Reilly, president of the National Insurance Consumers Organization in Washington. Consider asking for an inflation-guard clause, which automatically increases coverage to reflect current construction costs.
– Buy the right amount: The amount of insurance should reflect the cost of rebuilding, not the home’s market value, O’Reilly said. That sum, based on local building costs and the type of home, may be significantly higher or lower than the resale value in one’s neighborhood. If the estimates of agents or insurance companies for rebuilding costs seem questionable, consider hiring an independent appraiser.
The standard homeowners’ policy pays replacement costs up to the policy limit, and usually contains exclusions. A better option is to buy a guaranteed replacement cost policy, which covers rebuilding costs even if they exceed the policy limit.
If you own an older home, it is especially important to make sure the policy covers the cost of required building-code upgrades, which can be substantial. Also find out if separate coverage is needed for damage due to natural disasters such as earthquakes, floods or tornadoes.
Guaranteed replacement policies tend to be only slightly more expensive than standard policies. “In some cases, they’re actually cheaper because companies often limit eligibility for them,” De Long said. For instance, owners of older homes may have to settle for a modified replacement policy, in which the company can require the use of modern building materials-Sheetrock instead of plaster-when rebuilding.
O’Reilly said it is usually not necessary to include the cost of replacing the foundation or the land on which the home sits when determining coverage, since these are seldom lost in a disaster. De Long noted, however, that some foundations melted from the heat in the fires in Oakland in 1991, and that some California earthquake victims have had to replace lawns and foundations.
Homeowners’ insurance also covers a home’s contents, including anything on the property like swing sets or lawn equipment. Make sure the policy is for the replacement cost of such an item, rather than the cash value, which is its depreciated value.
The coverage limit for contents is usually 50 to 75 percent of the amount of the insurance on the dwelling. And there is often a limit on the dollar amount one can recover for jewelry, furs, silverware and home-office equipment. It may be necessary to buy additional insurance, often referred to as a rider or floater, for these items.
– Take inventory: To insure recovery after a loss and to determine the amount of coverage needed, know what is in your home. Thorough record keeping is necessary.
“The most common mistake everyone makes is keeping bad records of their belongings,” Castiglione said.
Be sure to keep receipts, especially for big ticket items, Castiglione said, and have pictures of those items. “Keep copies of this information, along with copies of the actual policy, both on the premises and somewhere else,” he said.
Having adequate coverage and keeping good records should be keys to filing successful claims, right? Unfortunately, that’s not always the case.
Customer dissatisfaction after a file has been claimed is significant. According to a 1993 survey by Consumer Reports of 47,000 readers who had filed claims between January of 1989 and the spring of 1992, one in four had complaints about the way the claim was handled. Chief among them: Disputes about what the policy actually covered, delays in processing the claim and discourteous service.
A similar study conducted for the Insurance Information Institute showed similar results, Salvatore said.
Because every claim is different, it is impossible to say how quickly it should be settled or when a consumer should seek help.
De Long emphasized: “You have had a loss. That places you in an adversarial relationship with your insurance company.”
– Alert the company: In case of a burglary, also contact the police and file a report, since most policies require this in order to process the claim. Do this even when away from home, as homeowners’ insurance usually covers one’s belongings even when not in the home itself.
– Make temporary repairs: This secures the property to avoid further damage. Board up windows or holes in the roof, for instance. If the home cannot be lived in, have the electricity, water and other utilities shut off.
– Keep detailed records: These should include receipts for any expenses incurred while securing the property and notes about any meetings with insurance company representatives. Take photos of the damage for future reference.
How quickly the insurance company sends a claims adjuster to estimate damage varies widely, although most states specify the time by which the company must respond to a claim.
O’Reilly noted: “I would certainly worry if I hadn’t heard from the company within 24 hours, telling me when they will make an on-site inspection and when I can expect an advance check for expenses and temporary lodging. And make sure the insurance company knows where to send the check if you’re displaced.”
– Call a contractor: If damage is substantial, it’s best to secure a contractor immediately to determine the scope of the project before meeting with the adjuster, De Long recommended. The contractor “can be your strongest ally in getting what you deserve,” she said.
She also recommended against using a contractor recommended by the insurance company, since the contractor might depend on the company for work. It’s also not a good idea to get several estimates, since the insurance company might insist on the low bidder.
Have the contractor make as detailed a plan as possible, De Long added. “The more steps you include, the more line items, the better chance you have of getting paid,” she said.
For example, when talking about replacing carpeting, include repairing the floor below, removing and hauling away the damaged carpet and installing a new one, she said. When meeting with a company adjuster, it’s wise to have the contractor be there, to point out any problems the adjuster might miss.
– Hire an adjuster: Public adjusters work for homeowners to get the best possible settlement. They charge about 10 percent of the final settlement for their services.
When hiring a public adjuster, make sure the person is licensed with the state insurance department and is a member of the National Association of Public Insurance Adjusters, a professional organization. A public adjuster may also be hired later on, should a settlement prove difficult.
– Don’t shortchange yourself: Don’t settle for less than you deserve, O’Reilly urged. “Quite often, insurance companies try to wear you down, so that you’ll be glad to get anything at all,” she said.
If you dispute the insurance company’s offer, first contact the insurance agent or company representative and ask him or her to review the claim once again.
Many companies allow for an independent arbitrator when disputes over costs arise. Although the arbitrator’s decision is binding, it doesn’t preclude policyholders from pursuing other issues, such as bad faith, later on. An insurance company may be found in bad faith if it fails to pay a reasonable well-documented claim, O’Reilly said.
All state insurance departments also provide consumer help, and in some cases mediation, in pursuing a settlement. They also follow up on consumer complaints regarding insurance companies, agencies and adjusters. To file a complaint, call or write requesting a complaint form, which outlines all necessary information.
The telephone number of the consumer services section of the Illinois Department of Insurance is 312-814-2427.
Only as a last result, hire a lawyer skilled in insurance law to pursue a claim. “You really have to use your judgment when hiring an attorney,” O’Reilly said. “You risk having costs come out of your own pocket.”
