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Disaster Preparedness and Your Insurance Policy

April 28, 2014


We often discuss disaster preparedness on our blog: how to prepare for a snowstorm, how to clear your property for wildfire, kitchen safety, etc. But one thing we don’t spend much time covering is the parts of your insurance policy that may come into play after a disaster happens. As we always caution, talk with your agent! They’re your best resource. But here are some questions and topics you should be prepared to discuss with them before a loss occurs:

  • Additional living expenses (sometimes called Loss of Use). Your insurance policy probably provides some money to help you pay for an alternate place to stay and living expenses while your home is being repaired.
    • Be sure to ask your agent how long this coverage will last (some policies will cover you for as much as 24 months) and what living expenses are included (for example: your electric bill if you have to live in an apartment temporarily and you’re still paying for the electricity at your home, food if your kitchen is destroyed by fire and you can’t cook, etc.).
  • Dwelling coverage. Everyone (hopefully) knows that insurance will pay to repair or replace your dwelling should a covered cause of loss occur. But consider this: if you’ve recently renovated or remodeled part, or all, of your home, you may need to increase your dwelling coverage. If you purchased a home ten years ago with vinyl flooring in the kitchen and laminate countertops, and recently upgraded to hand-scraped hardwood and granite counters, your insurance probably won’t be enough to replace that should a fire, or similar loss, destroy the kitchen. Any time you do major renovations to your home, contact your agent and find out if you need to increase your coverage.
  • Other structures. If you have detached garages, cottages, or other structures on your property that are not attached to your main home, you should be sure these are properly insured. The Other Structures coverage on your policy should cover a majority of these (consult your agent to be certain). Other Structures can also cover fences and similar.
  • Floods, landslides, and earthquakes. These hazards are not typically covered under a regular homeowner or renter’s insurance policy. These are additional coverage and cost more. If you live in an area where one of these is a concern, you should definitely contact your agent.
    • Some questions to ask: What is the deductible should a loss occur? The deductible on some earthquake policies can cost as much as 10% of the cost of the coverage. For instance: If you purchase a $300,000 earthquake policy, your deductible may be as much as $30,000.
    • What exactly is covered should a loss occur? For example, if your home is flooded and you have flood insurance, what does this replace?
  • Actual Cash Value (ACV) vs. Replacement Cost. Insurance policies will pay to replace items in your home in one of two ways, using either ACV or Replacement Cost. These are calculated separately and can grossly affect how your items are replaced. Talk to your agent! Find out if your policy covers you for ACV or Replacement Cost and what that will mean if a loss occurs.
    • ACV: This is the “market value” of your goods. Repair and replacement of these items are with items of like kind and quality.
    • Replacement Cost: When the repair or replacement of your items is of comparable material and quality.
  • Contents vs. Structure. The contents of your home are insured under a separate policy limit than the structure of your home. Sometimes this is an obvious difference (couches are contents, for example), but what about carpets or drywall? Talk with your agent and make sure your limits are appropriate in both areas.
    • This is especially important if you own a condominium. You may need to talk with your Homeowners Association to find out where your ownership of joint walls begins. In some condos, like the association where I live, the owner owns “from the studs in.” If a fire occurs that burns down my condominium, I will have to pay to replace my sheetrock. My agent, knowing this, took it into account when he discussed my limits with me. It will cost me more to replace things inside my unit if a fire were to occur. Other associations might own “from the drywall out” (meaning they will pay to replace the drywall within your unit, if a covered cause of loss occurs).
  • Video tape or photo, and document your items. Catalog as much of the inventory of your home as possible, and keep it in a safety deposit box. This way, should a total loss occur, you already know what items are in your home. If your home burns down in a fire, it will be difficult to remember everything like artwork, dishes, silverware, luggage, electronics, and on and on.
  • What to do if a loss occurs. Your insurance policy will require you take certain actions if a loss occurs. Your agent should be able to walk you through this process once you notify them of a claim, but it’s a good idea to know ahead of time what a company will expect from you. Generally, contact your agent as soon as it’s safe to do so and they can help you from there.

We cannot stress enough that your insurance agent is your best resource for questions having to do with your individual needs and policy coverage. These are ideas of things you might want to go over with your agent next time your policy renewal comes up (or even sooner!). I recently switched agents, and my new agent was more than willing to spend a half hour on the phone with me explaining the best options and needs for my particular situation. Remember, knowing before a loss can help you ensure you’ll be properly taken care of after something happens!

Article by: Kristen Skinner

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