We like to think of our homes as a reliable refuge from the outside world. Our homes keep us safe from the ravages of the outdoors. Heat, cold, rain, and snow are all kept outside, while we remain comfortable and secure in our heated and cooled homes. But our homes are not as impervious as we sometimes like to think. In fact, every year, about 6% of households will file a claim with their homeowners or renters insurance for damage to their homes. That’s over 7 million claims. While many claims are for relatively minor damage, fire and weather-related damage can cost tens of thousands of dollars to repair. Being prepared for that kind of catastrophic damage could make the difference between getting your losses covered and losing out on your insurance claim.
Types of Insurance: Actual Cash Value
Homeowners insurance comes in two general categories, based on how coverage and reimbursement are calculated in case of a loss or damage to your property.
The first type of coverage is actual cash value (ACV) coverage. This coverage tends to be the cheaper option, but it comes with significant risks. An ACV policy will only pay for the value of the home or other property immediately before it was damaged. Unless an item was absolutely brand new, it is very unlikely that your insurance will cover its full cost. Instead, adjusters calculate the initial value when the item was new, and then reduce that value based on a mathematical calculation of the item’s depreciation.
A good way to illustrate an ACV policy is to use the example of a roof. Let’s say you installed a new roof at a cost of $20,000. That roof is expected to last 20 years. In other words, the value of the roof is $1,000 per year of expected life span. With each passing year, the value of the roof decreases by $1,000, since its remaining useful lifetime is shorter. After ten years, a storm heavily damages your roof. When the ACV is calculated, the adjuster starts with the initial cost of the roof, $20,000, and then reduces that cost by the amount of depreciation each year, in this case, $10,000 over ten years. So when you file your claim, the insurance company will only pay you for the current value of your roof (immediately prior to the damage). A 10-year-old roof is worth $10,000 after depreciation, and that is all you will get from the insurance company. Now you, the homeowner, are left to purchase a new roof, but you only have half the funds to do it.
Types of Insurance: Full Replacement Cost
On the other hand, full replacement cost coverage (RC) is more expensive but will pay much more in the case of catastrophic loss. Take, again, the example of the $20,000 roof. After ten years, the roof is severely damaged, and the homeowner makes an insurance claim. The roof is only worth $10,000 now, but you could never get a new roof for that, especially not one of comparable quality to the one that was just destroyed. So instead of calculating the value of the item lost (the roof, in this case), the insurance company will provide the full funds necessary to replace the damaged part of the house. Instead of covering $10,000, your insurance company will shell out the full $20,000 needed to purchase a new roof. Clearly, this is a much safer type of insurance. But it does come with higher premiums.
Which type of insurance is best for you depends on your finances. If you have the savings to cover a large part of the replacement costs in case of catastrophic damage, you may want to go with the ACV insurance. It is cheaper, and if you never run into problems, you can save a lot of money. In case of a claim, the ACV coverage will still help cover the damage, so your replacement costs are offset somewhat. On the other hand, if you don’t have the savings ready to pay out of pocket for damage to your home, it may be worth paying more upfront so that you are fully covered in case of a loss. It’s a larger investment, but if anything happens to your home, you can rest assured that you won’t take a big financial hit.
What You’ll Need to Make a Claim
Regardless of which type of coverage you have, making a claim may not be as straightforward as you think it should be. If your home is severely damaged, the damage may be complicated. Your roof may need to be replaced if it took a hit from a falling tree or a severe hailstorm. But that might not be the only damage. If the roof was damaged, it is quite possible that other property was also damaged. That may include your vehicle, your outdoor property, or even some of the items in your home.
While it is not the most common type of damage, fire damage is by far the most expensive. In the case of a fire, there are really two types of damage. First, there is the damage from the fire itself. Parts of your home may have burned down, including the items in it. But once the fire department arrives, their goal is to put out the fire, not to save your property. To quench the flames, the fire department will drench your home in hundreds of gallons of water. In the end, the water damage to your home may far exceed the damage from the actual flames. In many cases, the water damage is so extensive that the home is a total loss. Many of the items in the home may be ruined or destroyed.
To make a claim for the property in your home, you need to prove to the insurance company exactly what was in your home at the time of the damage, and how much it is worth. Got a drawer of valuable baseball cards? Unless you can show the insurance company evidence of each card, you aren’t getting your money back. The same holds true for every belonging you want to claim. $300 worth of suits and ties? $200 worth of high-quality bedding? An expensive set of china or silverware? Your insurance won’t pay for any of it unless you have a record of it.
Keeping Records of Your Belongings
How can you prove to your insurance company that you really sustained the property losses you are claiming? One way is to compile a photo inventory of everything you own. (For big-ticket items, it is also wise to save receipts, or to take photos of the receipts along with your property.) Twice a year, go through your entire home and take pictures of everything you own. Open up drawers and closets. Be thorough. Anything you would want the funds to replace should be included in your photo catalog. One easy way to remember to do your semi-annual inventory is to take time on New Year’s Day and the Fourth of July, two days you likely have off, about six months apart.
Once you have all the photos, store them somewhere they won’t be damaged if your home is partially or entirely destroyed. Disaster recovery experts used to recommend keeping a USB drive with your photos in an offsite location, like your office or a friend’s house. That’s still a good idea, but with modern technology, one of the safest ways to store your photos is in the cloud. Using your favorite online photo-storage application, upload all the images from your semi-annual inventory. If you can, put the photos together in a folder or album so you can pull them up quickly.
Once the photos are uploaded, they are stored on one or more servers (powerful computers) in vast corporate server farms. These server farms are giant warehouses built specifically to house computers, and the companies that run them put in place extensive security controls to prevent damage from fire, water, weather, or humans. It’s like taking your USB drive and putting it in a safe deposit box in Fort Knox, only you have access to the photos 24/7 just by logging on to a website.
What to Do in Case of a Disaster
When disaster strikes, you don’t have the time or the emotional energy for a drawn-out battle with an insurance company. Unfortunately, getting the coverage you deserve can often by a struggle. One of the best options you have is to work with a TrustDALE certified disaster recovery company. They can help you navigate the insurance claim process and get your home back to how it was.
Disasters are, by their very nature, disastrous. You can lose property accumulated over a lifetime, and your home can be damaged beyond recognition. A reliable disaster recovery company will help get you back on your feet, so a disaster is a little less disastrous.