We often don’t like to think about worst case scenarios. But being prepared for a worst case can make it a less terrible situation.
One worst case scenario is catastrophic damage to your home. Whether your home is damaged by fire, storms, or even a burst pipe, you will need to make an insurance claim to get back on your feet. Of course, insurance companies are profit-making businesses, and an insurance claim is a business negotiation. So the more prepared you are to make a claim, the better you will fare in the negotiation and the more likely you will be to be made whole again.
Making a Claim for Damaged Property
If you have severe damage to your home, it may not just be your house that suffers. Many of the items inside your house can suffer severe damage or total destruction. Part of your homeowners insurance is coverage for the things inside your house. But getting everything you are owed for the property that was damaged may not be so simple.
Three important terms to know are
- Actual Cash Value (ACV)
- Replacement Cost (RC)
Actual Cash Value
Actual cash value is what the item was worth just before it was damaged. It is usually defined as what a reasonable buyer would pay for the item in its current condition. To determine what an item is worth in its current condition, insurance adjusters calculate depreciation. Depreciation is the amount of value lost between the time the item was purchased and the time of the damage. For example, a brand new couch may have cost you $800 when you bought it ten years ago. But after ten years of heavy use by you, your children, and your pets, a reasonable buyer would not pay you $800 for the couch today. Perhaps a reasonable buyer might pay you $200 for the couch in its well-loved condition. The difference, $600, is the depreciation.
Calculating depreciation is subjective, and it’s an area where you can negotiate. The $800 couch that spent ten years in your family room will have depreciated more than the $800 couch that spent ten years in the guest bedroom. Don’t let an adjuster apply the same depreciation to all of your articles. Try to use common sense and fight for what your property is worth.
Replacement cost is a straightforward calculation. There is no depreciation to be accounted for. Instead, replacement cost is the amount of money it would cost you to replace the damaged item. That $800 couch in the family room may have been beaten up, but you could never replace it for $200. Instead, the replacement cost is probably closer to $800, the amount you would have to spend to get a new couch.
Many homeowners insurance plans cover replacement cost, and it’s easy to see why. If you got $200 for your couch and similarly depreciated values for all your other property, you would be a long way off of putting your life back together. However, you can only get the replacement cost for items you actually replace. There’s no cashing out replacement cost coverage. You’ll need to save your receipts and submit them to your insurance company.
Why You Need a Photo Inventory
An insurance company will pay to replace your damaged property, but they will first want proof that it existed in the first place. If you claim that you had $10,000 antique Persian rug that was destroyed in a fire, the insurance company won’t just hand you $10,000 without proof.
This is where your photo inventory comes in.
Twice a year—some disaster recovery experts suggest New Years and the Fourth of July—do a photo inventory of your home. Go through the whole house and photograph your property. Open up drawers and closets. Go into your garage, your attic, or your carport. Go outside and document your patio furniture. You can also take video to save some time. If you have a drawer or a shelf full of items, as long as you can see them all, you can take a single picture. The important thing is to have visual proof of everything you own or at least anything you would want to be replaced.
Once you’ve done your inventory, upload the photos and videos to the cloud. If you keep them on your home computer and your house is destroyed, you could lose your computer and your whole inventory. If you don’t like the idea of putting your files in the cloud, put them on two USB drives and store them in two separate places outside of your home. You can keep one in your desk at work and one with a friend. Whatever you do, just make sure that you know where they are, and they won’t get lost.
What to Do After a Catastrophe
If you’ve lost your home or even a large portion of it, you will be claiming a lot of damaged property. Of course, the insurance company will want documentation of what you owned and what it is worth. Putting all the information together is a time-consuming process, so file for an extension form your insurance company if you need to.
If you have your photo inventory, you’ve already done the hardest part of the job. Trying to recall everything you own without any documentation can be an arduous process, and you will rarely be able to remember everything. Plus, the photo inventory is your proof of ownership.
The next step is determining the value of each item. One way to speed up this process is to go to a large box store that carries a wide variety of products and offers gift registries. Open up a registry and then go around the store with your inventory, adding each item from your inventory to your registry. It’s an easy way to quickly compile a price list for many of the items in your inventory. For items that aren’t available in the store, shop online. Find prices for the remaining items on your list. Make sure you are getting regular prices, not discounted or sale prices.
If you’ve suffered a catastrophic loss, it can be hard to rebuild. Often the recovery process is just as emotional and psychological as it is physical. We can’t retrieve your cherished belongings, but our TrustDALE certified disaster recovery specialists can help you put your home and your life back together. They’ll work with your insurance company and help make you whole again.