When Things Go Right: Settling Damage Claims and Moving Ahead with Repairs

Disasters can make enormous demands on insurance company personnel. Sometimes after a major disaster, state officials request insurance 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 make a rough first estimate. Don't hesitate to ask the adjuster for an itemized explanation of the settlement offer if you need it.

If the first evaluation is not complete, set up an appointment for a second visit. The first check you get from your insurance company is often an advance. 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. Remember that your insurance company won't pay more than the limits of the policy, unless you have an extended or guaranteed replacement cost policy.

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. It serves as a legal record. Some companies waive this requirement after a disaster if you've met with the adjuster, especially if your claim is not complicated.

Making Repairs to Your Home

The choice of repair firms is yours. If your home was adequately insured, you won't have to settle for anything less than you had before the disaster. Be sure the contractor is giving you the same quality materials. Don't get permanent repairs done until after the adjuster has approved the price. If you've received 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. If the bids are too high, ask the adjuster to negotiate a better price with the contractor you would like to use.

Adjusters may also 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 everywhere. We can't stress enough how important it is to proceed with caution when selecting a contractor.

Settling on Your Vehicle Damage

If your car was damaged and you have comprehensive coverage in your auto insurance policy, you should contact your auto insurance company. If your car has been so badly damaged that it's 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.

Settling on Damage to Trees and Shrubbery

Most insurance companies will pay for the removal of trees that have fallen on your home, but won't pay to remove fallen trees that didn't cause damage to your home.

Because high winds cause so much damage to trees and shrubs every year, insurance companies won't pay to replace trees or shrubbery that have been damaged in a storm. If trees and other landscaping were covered, homeowners insurance would be unaffordable.

Caution: Take Care When Choosing a Contractor Please see tips in Route 3 for hiring a reputable contractor. Disaster areas often experience numerous scams during recovery, so be sure to follow these tips to avoid unpleasant surprises and contractor roadblocks as you speed toward recovery.

How Is the House Insurance Settlement Amount Determined?

The settlement amount, or compensation, you get depends on which type of policy you have. Here are some things you should know.

Replacement-Cost and Actual Cash Value Policies

A replacement-cost policy provides you with 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, obsolescence, wear and tear, and other factors.

An actual cash value policy pays you the amount needed to replace the item minus depreciation.

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 Policies

 If your home is damaged beyond repair, a typical homeowners policy will pay to replace it up to the limits of the policy.

When the value of your insurance policy has kept up with increases in local building costs, a similar dwelling can generally be rebuilt for an amount that is within the policy limits.

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. These are called extended replacement-cost policies.

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 nor an extended replacement-cost policy will pay for a house that's better than the one that was destroyed.

How Will I Receive the Money?

Payments and Your Mortgage Lender

When both the structure 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. As a condition of granting a mortgage, lenders usually require that they are named in the homeowners policy and that they are a party to any insurance payments related to the structure. Compensation for loss of the contents of your home is payable to you.

The lender gets equal rights to the insurance check to make sure that the necessary repairs are made to the property, since the lender has a significant financial interest in the home retaining its value. 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.

Some construction firms want you to sign a direction to pay form that allows your insurance company to pay the firm directly. Make certain that you're completely satisfied with the repair work and that the job has been completed before signing any forms. Once you sign a “direction to pay” form, the construction firm will bill your insurance company directly and attach the form you signed.

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 guidelines are. See website for state bank regulator offices.

Contents of Your Home

If you have a mortgage on your home, your bank may have received a single check for both repairs to your home and your possessions. If you don't get a separate check from your insurance company for the contents of your home and other expenses, your 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.

Contact the offices of your state bank regulators if you have questions about how your lender is handling the insurance settlement funds.

Alert: Work with Your Lender and Insurer Payments from your insurer to help you pay for storm damage to your home will be made payable to you and your lender if you have a mortgage. Because of this you will not be able to deposit or use the check without your lender's participation. Contact your lender about how to manage insurance payments.

If you have a replacement-cost policy for your personal possessions, you normally need to replace the damaged items first before your insurance company will pay you. If you decide not to replace some items, you will be paid their actual cash value.

Your insurance company usually allows 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 also provide some replacement items themselves.

Additional Living Expenses

There may be limits on the amount of additional living expenses that will be paid, so be sure to check your policy. Your check for additional living expenses (for hotels, car rentals, and other expenses you incur while your home is being fixed) should be made out to you, not your lender. This money has nothing to do with repairs to your home.

If Your Home is Destroyed and You Decide to Rebuild Your Home on the Same Site

  • The amount of money you’ll have to rebuild your home depends on both the type of policy you bought and the dollar limit specified on the first declarations page of your policy.
  • Generally, you are entitled to the replacement cost of your former home, providing that you spend that amount of money on the home you rebuild.
  • Remember, your insurance policy will pay to rebuild your home as it was before the disaster. It won't pay to build a bigger or more expensive house. A similar rule applies to repairs.

If Your Home is Destroyed and You Decide to Rebuild in a Different Location or Not to Rebuild at All

  • The amount you'll get from your insurer will be determined by your policy, state law, and/or what the courts may have ruled on this matter.
  • If you decide not to rebuild, review your policy and ask your insurance agent or company representative what the settlement amount will be.

After Your Claim Has Been Settled and the Repair Work Is Underway

Take some time to evaluate your homeowners insurance coverage. For example, was your home adequately insured? Did you have replacement-cost coverage for your personal property? Talk to your insurance agent or company representative about possible changes.