Settling Insurance Claims After A Disaster.
insurance to take care of emergencies and insurance companies want
you to be satisfied with the way they honor their part of the contract.
This brochure will help you understand
How to file a claim
How the claim process works.
are some important things to remember as the rebuilding process
can contact your adjuster again if you have additional information
or find some damage you hadn't noticed before.
you believe the settlement offer made by your insurance is not a
one, contact the company. Present information to back up your claim.
? Your settlement probably won't be the same as your neighbor's.
insurance policy may be different and the amount of damage to your
home may be different even though you live on the same street.
yourself from shoddy workmanship. Use only licensed,
reputable contractors and be sure they get the proper building permits.
Beware of contractors who ask for a large amount of money up front
And contractors whose bids are amazingly low- they might cut corners
And leave you with a construction or building code problem after
insurance policy will pay to repair or replace the property you
before the disaster. But it won't pay for expensive improvements
tile roof if you had a standard fiberglass roof before.
your home was destroyed beyond repair, and you decide to rebuild
on another lot, to purchase another house instead of rebuilding,
rebuild in another state or to rent rather than rebuild, check your
under Section 1, Conditions, Loss settlement or talk to your insurance
agent or company representative. There may be limitations on what
your insurance company will pay if you don't rebuild on the same
How To Make The Insurance Claims Process Work For You.
home is badly damaged but can be repaired, do what you can immediately
to prevent further weather-related damage. Cover with plastic or
board up holes in the roof, walls, doors and windows. Be careful
not to risk your own safety in making the repairs. Your insurance
company will reimburse you for the cost of your repairs, so keep
the receipts for any materials that you buy.
Beware of building contractors that encourage you to spend a lot
of money on temporary repairs. Remember that payments for temporary
repairs are part of the total settlement. If you pay a contractor
a large sum for a temporary repair job, you may not have enough
money for permanent repairs.
Don't make extensive permanent repairs until after the claims adjuster
has been to your home and assessed the damage. Avoid using electrical
appliances, including stereos and television sets, that have been
exposed to water unless they've been checked by a technician.
your insurance agent or insurance company's 800 number
the damage to your insurance agent or insurance company representative.
Most homeowners policies cover additional living expenses as well
as repairs to your damaged home and your personal possessions. Your
insurance company will advance you money if you need temporary shelter,
food and clothing because you can no longer live in your home and
your clothes have been ruined. It will also advance you money if
you need to replace major household items immediately to continue
living there. The payments will be part of the final claim settlement.
Let your insurance company know where you can be reached so that
the claims adjuster can give you a check. Keep receipts for what
you spend. Make sure the check for additional living expenses is
made out to you and not your mortgagee-the bank or other mortgage
lender. This money has nothing to do with repairs to your home and
you may have difficulty depositing or cashing the check if you can't
get the mortgage lender's signature.
for the adjuster's visit
process may begin in one of two ways. Your insurance company may
send you a claim form, known as a "proof of loss form,"
to complete. Or an adjuster may visit your home first, before you're
asked to fill out any forms. (An adjusted is a person professionally
trained to assess the damage.) In either case, the more information
you have about your personal possessions-a description of the item,
date of purchase and what it would cost to replace or repair-the
faster your claim generally can be settled.
Make lists of the damaged items. If possible, take photographs of
the damage, and put together a set of records- old receipts, bills
and photographs-to help establish the price and age of everything
that needs to be replaced or repaired. Write down brand names and
model numbers of appliances and electronic equipment. Don't forget
to list items such as clothing, sports equipment, tools, china and
linens, outside furniture, holiday decorations and hobby materials.
Don't throw out damaged furniture and other expensive items as the
adjuster will want to see them.
If your property was destroyed or you no longer have any records,
you will have to work from memory. Try to picture the contents of
every room and then write a description of what was there. Try also
to remember where and when you bought each piece and about how much
you paid. It may also speed up the settlement of your claim if you
find out how much it will cost to replace the destroyed items.
damage: Identify the structural damage to your home and other buildings
on your premises, like a garage, toolshed or inground swimming pool.
Make a list of everything you would like to show the adjuster when
he or she arrives-for example, cracks in the walls, damage to the
floor or ceiling and missing roof tiles. If structural damage is
likely even though you can't see any signs of it, discuss this with
your adjuster. In some cases, the adjuster may recommend hiring
a licensed engineer or architect to inspect the property. You should
also get the electrical system checked. Most insurance companies
pay for such inspections.
If possible, get written bids from reliable, licensed contractors
on the repair work. The bids should include details of the materials
to be used and prices on a line-by-line basis. This makes adjusting
the claim faster and simpler.
Give yourself several days before the adjuster arrives to complete
your lists. It will take time to assess the damage. Although you
can always notify the adjuster of any additional items you overlooked,
this may slow up your claim settlement. Be sure to keep copies of
the lists and other documents you submit to your insurance company.
Also keep copies of whatever paperwork your insurance company gives
Homeowners insurance policies usually don't cover flood damage.
You need a separate flood insurance. If you have flood insurance
through the federal government's National Flood Insurance Program-
available through most insurance agents-your homeowners claim adjuster
may coordinate claims for flood damage with other damage claims.
the claim settlement amount
for the damage to your dwelling and the contents of your home may
be based on replacement cost or actual cash value. The settlement
amount will depend on which type of policy you bought.
between replacement cost and actual cash value:
cost is the dollar amount needed to replace a damaged item with
one of similar kind and quality without deducting for depreciation-the
decrease in value due to age, wear and tear and other facors. An
actual cash value policy pays the amount needed to replace the item
Suppose, for example, a tree fell through the roof onto your eight-year-old
washing machine. If you had a replacement cost policy for the contents
of your home, the insurance company would pay to replace the old
machine with a new one. If you had an actual cash value policy,
the company would pay only a percentage of the cost of a new washing
machine because a machine that has been used for eight years would
be worth less than its original cost.
Suppose, also, that the tree damaged your 15-year-old roof so badly
that it had to be completely replaced. If you had a replacement
cost policy, the insurance company would pay the full cost of installing
a new roof. If you had an actual cash value policy, it would pay
a smaller percentage of the cost of replacing it.
Extended and Guaranteed Replacement Cost:
home was damaged beyond repair, a typical homeowners policy will
pay to replace your home up to the limit of the policy. Where the
value of your insurance policy has kept up with increases in local
building costs, a dwelling like the one that was destroyed generally
can be rebuilt for an amount that's within the policy limit. However,
some insurance companies offer a replacement cost policy that will
pay a certain percentage over the limit to rebuild your home-20
percent or more, depending on the insurer-so that if building costs
go up unexpectedly, you will have extra funds to cover the bill.
Sometimes after a widespread disaster, a large demand for construction
workers and materials drives up prices. A few insurance companies
still offer a guaranteed replacement cost policy that pays whatever
it costs to rebuild your home as it was before the disaster. But
neither a guaranteed or extended replacement cost policy will pay
for a house that's better than the one that was destroyed.
Home Policies: If you own a mobile home, you may have a policy based
on replacement cost, actual cash value or, in a few cases, a "stated
amount." With a stated amount policy, the maximum amount you
receive if your home is destroyed is the amount you agreed to when
the policy was issued. The depreciation in the value of your home
is not considered in the settlement.
Insurance Can Affect The Settlement Amount: The value of most peoples'
insurance polices is adequate because the polices usually include
an inflation-guard clause to keep up with increase in local building
When you have replacement cost coverage and there's no question
about whether you have sufficient insurance, your insurance company
will pay the full cost of repairing or replacing the damaged structure
with a building of "like kind and quality." In other words,
if you were adequately insured and lived in a three-bedroom ranch
before the disaster, your insurance company would pay to build a
similar three-bedroom ranch.
Most insurance companies recommend that adwelling be insured for
100 percent of replacement cost so that you have enough money to
rebuild if your home is totally destroyed. But some insurance policies
say that as long as the dwelling policy limit at the time of the
disaster was 80 precent of the replacement cost, the insurance company
will pay the smaller of two amounts: the actual amount needed to
replace or repair your home or the limit on the policy.
What does this 80 percent requirement mean? Let's take a home that
was damaged but can be repaired. Suppose, for example, that it would
cost $100,000 to rebuild your home and it was insured for $80,000
at the time of the disaster(80 percent of replacement cost). If
the repair bill came $20,000, the insurance company would pay the
full cost of repairing the damage - minus your deductible-because
you had complied with the 80 percent requirement and the repair
bill was less than the policy limits. There would be no deduction
What happens if you have this kind of policy and you weren't insured
for 80 percent of the home's replacement cost before the disaster?
Your insurance company generally will pay only part of the loss.
Let's say your $1000,000 home was insured for $60,000(75 percent
of the amount necessary). The insurance company would generally
pay the larger of the two amounts: either 75 percent of the $20,000
repair bill ($15,000, less your deductible) or the "actual
cash value" of the part of the building that was destroyed.
What happens if your home is totally destroyed? Your insurance company
will pay up to the limits of the policy to rebuild it. So if your
dwelling policy limit is less than 100 percent of replacement cost,
you run the risk of not having enough money to replace your old
home with one of equal size and quality.
living expenses: If you can't live in your home because of the damage,
your insurance company will advance you money to pay for reasonable
additional living expenses-the amount that it costs your household
to live somewhere else while your home is being repaired or rebuilt
minus what you would have normally spent if you had been living
The amount available to pay for such expenses is generally equal
to 20 percent of the insurance on your home. So on a home insured
for $100,000 up to $20,000 would be available. This amount is in
addition to the $100,000 to pay for repairs or to rebuild your home.
Some insurance companies pay more than 20 percent. Others limit
additional living expenses to the amount actually spent during a
certain period of time, Such as 12 months, instead of a maximum
percentage of the policy limit.
Among the items typically covered are extra food costs, increased
housing costs, telephone or utility installation costs in a temporary
residence, extra transportation costs to and from work or school,
relocation and storage expenses and furniture rental for a temporary
Insurance policies often discuss additional living expenses under
the heading "loss of use." Some mobile home insurance
polices limit extra living expenses to a time period- usually three
months-rather than a percentage of the policy amount.
Automobiles: If your car was damaged and you have "comprehensive"
coverage in your auto insurance policy, you should contact your
auto insurance company. Some companies use a drive-in claims center
where an adjuster will assess the damage and often pay the claim
If your car has been so badly damaged that it is not worth repairing,
you will receive a check for the car's actual cash value-what it
would have been worth if it had been sold just before the disaster.
Your local bookstore or library may have used car prices that will
give you an idea of what your car was worth.
and shrubbery: Most insurance companies will pay for the removal
of trees that have fallen on your home but they won't pay to remove
the trees that have fallen and haven't caused damaged to your home.
They won't pay to replace trees or shrubbery that have been damaged
in a storm. Why is this kind of damaged excluded? High winds cause
so much damage to trees and shrubs every year, that if trees and
other landscaping where covered, homeowners insurance would be unaffordable.
Most polices pay a certain amount to replace trees and shrubs destroyed
by fire and some other causes of damage.
damage: Homeowners polices don't cover flood damage but they do
cover other kinds of water damage. For example, they would generally
pay for damage from rain coming through a hole in the roof or a
broken window as long as the hole was caused by a hurricane or other
disaster covered by the policy. If there is water damage, check
with your agent or insurance company representative as to whether
it is covered.
amount if you don't rebuild: If your home was destroyed, you have
several options. You can rebuild your home on the same site. Or
you can sell the land your old home was built on and build in a
different place, even another state. Or you may decide that you
would rather rent a home than rebuild the one that was destroyed.
If you decide not to rebuild, the settlement amount depends on state
law, what the courts have said about this matter and the kind of
policy you have. Read your policy carefully if you decide not to
rebuild and find out from your insurance agent or company representative
what the settlement amount will be based on. Generally, you are
only entitled to the replacement cost of your former home if you
spend that amount of money on the home that you rebuild.
A similar rule applies to repairs. Suppose you decide, say, to change
the kitchen flooring materials when you rebuild. If, for example,
you replace your expensive floor with materials that are cheaper
but, more practical, you are not entitled to the difference in cash.
Unless the cost of repairs is a small amount, your insurance may
initially pay you a sum equal to the actual cash value. It will
withhold the balance of the full replacement cost amount until after
the repairs are completed.
with current building codes: Building codes require structures to
be built to certain minimum standards. In areas likely to be hit
by hurricanes, for example, buildings must be able to withstand
high winds to reduce the risk of hurricane damage. If your home
was damaged and it was not in compliance with current local building
codes, you may have to rebuild the damaged sections according to
current codes. In some cases, complying with the code may require
a change in design or building materials and may cost more. If you
live in an area likely to be flooded, you may have to comply with
federal codes which require buildings to be raised above flood level.
Generally, homeowners insurance polices won't pay for these extra
costs but some insurance companies offer an endorsement that pays
a specific amount toward such changes. (An endorsement is a form
attached to an insurance policy that changes what the policy covers.)
adjusters: Your insurance company provides an adjuster at no charge
to you. You also may be contacted by adjusters who have no relationship
with your insurance company and charge a fee for their services.
These are known as public adjusters. You may use a public adjuster
to help you in settling your claim with the insurance company adjuster.
But remember that the public adjuster may charge you as much as
15 percent of the total value of your settlement for his or her
services. The fee isn't covered by your insurance policy. Sometimes
after a disaster, the percentage that public adjusters may charge
is set by the insurance department.
If you do decide to use a public adjuster, first check his or her
references and qualifications by calling the Better Business Bureau
and your state insurance department. Ask your agent, a lawyer or
friends and associates for the name of a professional adjuster they
can recommend. Avoid individuals who go from door to door after
a major disaster unless you are sure they are qualified.
Settling the claim.
Disasters make enormous demands company personnel. Your adjuster
generally will come prepared to do a thorough and complete study
of the damaged to your home. Sometimes after a major disaster, state
officials request insurance company adjusters to see everyone who
has filed a claim before a certain date. When there are a huge number
of claims, the deadline may force some adjusters to "scope
the loss." If your adjuster doesn't make a complete evaluation
of the loss on the first visit, try to set up an appointment for
a second visit.
The first check you get from your insurance company is often an
advance, not a final payment. If you're offered an on-the-spot settlement,
you can accept the check right away. Later on, if you find other
damage, you can "reopen" the claim and file for an additional
amount. Most policies require claims to be filed within one year
from the date of the disaster. If you do reopen your claim, remember
that your insurance company won't pay more than the limits of the
policy, unless you have an extended or guaranteed replacement cost
Some insurance companies may require you to fill out and sign a
"proof of loss" form. This formal statement provides details
of your losses and the amount of money you're claiming and acts
as a legal record. But some companies waive this requirement after
a disaster if you've met with the adjuster, especially if your claim
is not complicated.
The choice of the repair firm is yours. The insurance company won't
pay for you to upgrade your home. But if your home was adequately
insured, you won't have to settle for anything less than you had
before the disaster. Be sure the contracter is giving you the same
Don't get permanent repairs done until the adjuster has approved
the price. If you've received any bids, show them to the adjuster
when he or she arrives. If the adjuster agrees with one of your
bids, then the repair process can begin. Check with your local government
offices about gerring building permits and find out whether (and
at what stages in the rebuilding process) work must be inspected.
If the bids are too high, ask the adjuster to negotiate a better
price eith the contractor you would like to use. Adjusters may laso
recommend firms that they have worked with before. Some insurance
companies even guarantee the work of firms they recommend but such
programs are not available in every locality.
can't reach an agreement with your insurance company:
If you and your adjuster can't agree on a price, whether it involves
a minor repair job or the complete rebuilding of your home, first
contact your agent or your insurance company's claim department
manager. Make sure you have figures to back up your claim for more
If you and your insurance company still disagree, your insurance
policy allows for an independent appraisal of the loss. The independent
appraisal process is explain in your policy. You hire an independent
appraiser and your insurance company also hires an independent appraiser.
Together the appraisers choose an umpire. The decision of any of
these two people is binding. You and your insurance company each
pay for your own appraiser and share the other costs. However, disputes
rarely get to this stage.
Some insurance companies may offer you a slightly different way
of settling a dispute. This is called "arbitration." When
settlement differences are arbitrated, a neutral "arbiter"
hears the argument of both sides and then makes a final decision.
Or you can call your state insurance department's consumer helpline
for home repairs and personal property
When both the dwelling and the contents of your home are damaged,
you generally get two separate checks from your insurance company,
if your home is mortgaged, the check for home repairs will generally
be made out to you and the mortgage lender (mortgagee). As a condition
of granting a mortgage, lenders usually require that theu are named
in the homeoqners policy and that they are a party to any insurance
payments related to the structure. The lender gets equal rights
to the insurance check to ensure the necessary repairs are made
to the property in which it has a significant financial interest.
The same is true for banks that provide car loans.
This means that the mortgage company or bank will have to endorse
the check. Lenders generally put the money in an escrow account
and pay for the repairs as the work is completed. You should show
the mortgage lender your contractor's bid and say how much the contractor
wants up front to start the job. Your mortgage company may want
to inspect the finished job before releasing the funds for payment.
Sometimes the lender allows its name to be left off the check as
long as the repair firm's name is on it.
If you don't get a separate check from your insurance company for
the contents of your home and other expenses, the lender should
release the insurance payments that don't relate to the dwelling.
It should also release funds that exceed the balance of the mortgage.
State bank regulators often publish guidelines for banks to follow
after a major disaster, setting out how these and other matters
should be handled. Contact state offices to find out what these
Some construction firms require you to sign a form that allows your
insurance company to pay the firm directly. Make certain that your
completely satisfied with the repair work and that the job has been
completed before signing any forms. Remember, you won't receive
a check for the repair job. The firm will bill your insurance company
directly and attach the "direction to pay" form you signed.
If you have a replacement cost policy for your personal possessions,
you normally need to replace the damaged items before your insurance
company will pay you their replacement cost. If you decide not to
replace some items, you will be paid their "actual cash value."
You don't have to decide what to do immediately. Your insurance
company will generally allow you several months from the date of
the cash value payment to replace the item and collect full replacement
cost. Find out how many months you are allowed. Some insurance companies
supply lists of vendors that can help replace your property. Some
companies may supply some replacement items themselves.
After your claim has been settled and the repair work is underway,
take some time to evaluate your homeowners insurance coverage. Was
your home adequate insured? Make sure your home is insured for 100
percent of rebuilding costs. Anything less is taking a gamble. Did
you have replacement cost coverage for your personal property? Talk
to your insurance agent or company representative about possible