No one thinks disaster will strike. After all, it’s human nature to believe that unusual circumstances, like a flood, fire, or other significant damage to your home, can only happen to other people. But that attitude can make a disaster much, much worse. Instead, you can be prepared for a disaster. If you ever need it, following the right steps can minimize the trouble and help you recover. Here are some tips to make sure that if the worst happens, you’ll be prepared.
All About Insurance
It’s crucial that you carry homeowners insurance. In fact, most mortgage companies won’t allow you to take out a mortgage without homeowners insurance. And for good reason. Should your home incur significant damage, the mortgage company wants to know that their collateral won’t be wiped out. But exactly which type of insurance you carry can make a huge difference in an actual emergency.
The first type of insurance is called Actual Cash Value (ACV) insurance. At first, it may seem like a good deal. It is far cheaper than any other kind of insurance, and you will receive the entire value of your destroyed property. But the name can be deceiving. An insurance company will never part with their money easily. And if you carry ACV insurance, you may be in for a nasty surprise. While you may have purchased your belongings for one price, that is not the amount of money your insurance will pay. Because that’s not the actual cash value of your property as it is right now.
For example, you may have bought a couch for $1,000. But that couch, as it is sitting in your living room, is not in the pristine condition it was when you bought it. If you had to sell it today, you might get $500 for it. And that is about what the insurance company will pay. After that, you’ll be on the hook for another $500 if you plan to replace the couch.
Actual Cash Value is calculated according to a standard formula. The insurance company starts with the full replacement cost. But then they subtract depreciation. Depreciation is calculated as a percentage of the replacement cost equal to the portion of the property’s life expectancy that has already passed. So if that $1,000 couch would reasonably last ten years, and before the disaster it was seven years old, the ACV would be 70% less than the replacement cost, or $300. That’s certainly not going to get you a new couch unless you plan to buy a seven-year-old couch! Even then, the ACV calculated by insurance companies is rarely enough to purchase even a similar item to the one that was damaged or destroyed.
If you have significant cash savings, the savings of an ACV insurance policy may be worth it. But if your savings account is somewhat limited, you may fund yourself caught in a lurch if your property is destroyed.
Replacement cost insurance is more expensive than ACV insurance. But the coverage is much better. With Replacement Cost insurance, the insurance company will reimburse you for the amount of money it would cost to replace the item today with a new one. In case of an emergency, you can rest assured that the insurance company will give you the cash you need to make yourself whole. If you don’t have an emergency fund that could cover most of the cost of replacing your furniture and other belongings, Replacement Cost insurance is for you. It costs more now, but it ensures that a disaster won’t wipe you out financially.
The Risk of Insurance
As with any insurance, carrying Replacement Cost insurance is something of a bet. You are betting that at some point, you will need coverage that exceeds the amount of money you have paid in premiums, and you will come out ahead. Meanwhile, the insurance company is betting precisely the opposite. And just like in Vegas, the house always wins. Insurance companies employ actuaries whose entire job is to determine how likely any given customer is to make a claim. Based on that well-informed estimate, insurance companies set their premiums so that they will always come out ahead. If they didn’t, insurance companies couldn’t exist as viable businesses.
With everyone paying premiums, someone is bound to have an emergency and make a claim, which the insurance company can pay with the premiums of individuals who aren’t making a claim. Insurance companies are also required by law to keep a certain amount of cash on hand in case claims exceed premiums at some point. This situation is most common in the aftermath of widespread damage events, like hurricanes and floods. When entire communities, or even entire regions, all make claims, it can strain the insurance company’s resources. But with the mandated cash on hand, insurance companies should never have to default on their insurance payments.
Proving Your Losses
Insurance companies don’t part with their money easily. If your home and its contents are damaged or destroyed, you can only get reimbursed for the property you can prove you had. So the more you can document your belongings, the more money you will be entitled to in an insurance claim. On the other hand, if you claim without proof that an antique end table was destroyed, the insurance company has no way of confirming that, and they won’t pay for it.
To ensure that you receive all the coverage you are entitled to, you need to document all of your belongings. The best way to do that is the go around your whole home and photograph everything. Start with the big stuff, furniture, appliances, art. Next, move to the smaller items in closets and drawers. Open up cabinets and drawers to photograph what‘s inside. Move through your entire house this way. Most disaster recovery experts recommend taking a full inventory twice a year. One easy way to remember to do it and take advantage of time off is to document your belongings on New Year’s Day and Independence Day.
Protecting Your Photos
Once you have taken photos, you need to protect those images. It is always a good idea to keep them backed up in more than one place. First, put all the photos on a flash drive and store it somewhere away from your home. That way, if your home is destroyed, the drive stays safe. Some people store it in their offices or with a friend.
The second place to keep your images safe is in the cloud. Whether you use Google Photos, Apple’s iCloud, or any other online repository, you can upload your photos for safekeeping. Some people believe that the cloud is insecure. But, in fact, the opposite is true. When you upload images to the cloud, they are stored on hard drives in giant server farms, comprising hundreds or even thousands of computers kept under tight security. These massive warehouses are highly protected from heat, cold, water, and people, with top-notch safety and security features.
In case of a disaster that destroys your home and property, these photos will provide proof of your belongings. With documentation, you can claim as much coverage as possible from your insurance.
Repairing the Damage
In addition to filing a claim for your property, you will need someone to repair the damage to your home. Remediating a severely damaged home is very different than building an addition or renovating a few rooms. So it’s not a good idea to hire just any contractor to make the repairs. Instead, you need experts, like the TrustDALE certified disaster recovery experts you can find on TrustDALE.com. When there is widespread damage across an entire neighborhood, such as after a storm, opportunistic repair contractors may swarm the area. Be wary of these fly-by-night builders. They come from all over, they may or may not be skilled, and if there is a problem, they may be hard to track down. Instead, stick with businesses you can trust from TrustDALE. You’ll be glad you did.