Before, During and After a Disaster

I am not a disaster expert. However, as a financial planner I do know something about protecting your assets and what to look for in insurance coverage. So the focus of this ezine will be on how to prepare for and how to recover from a natural disaster. I’m also including some resource links and suggestions for those recovering from the recent fires.

Immediate – While those affected by recent fires are now beyond the initial steps I will repeat them: getting to safety; communicating your safety to friends and family; securing lodging, transportation and cash. Some fire victims left without their wallets. Think about how you could access your bank accounts if you did not have identification or debit cards. Here are some precautions to consider:
Upload personal identification papers to a secure online service like ShareFile.
    Place some personal identification papers, i.e. birth certificate, marriage license, etc. in a safety deposit box. But if you leave in a hurry, would you have that key? Do you really want that key on your key ring?
    Consider giving the second key to your safety deposit box to someone you trust in a separate household.
    Consider keeping cash on hand and gas in the car.
Call your insurance company. Homeowners and renters policies that cover living expenses may offer an advance against the insurance claim. If you do not have an insurance policy, there may be some aid available from FEMA, other governmental agencies or non-profits. Depending upon the severity of the incident, loans and grants up to as much as $34,000 may be offered for expenses not covered by insurance. The Small Business Administration has a loan program with a rate of 1.75% for up $200,000.
Be careful to not settle the insurance claim immediately.
    Start retaining receipts immediately.
    Document all communication with the insurance company.
    Start a mileage log for the additional distances to work and school.
Call your creditors as well. Some creditors will allow you to defer payments for up to 90 days. That relief may be extended to 12 or 24 months. With property taxes due so soon, you will probably see counties allowing a deferral for property tax payments. (These deferrals require a claim with your county assessor’s office within 12 months from the date of damage. Sonoma County is already in process of revaluing properties and, in turn, lowering property tax liabilities.
     If you are a renter, consider cancelling your utilities.
    If you’re an employee who has lost your job, call your employer and leave your contact information. Many employers lost their employee records and do not know where to send the last paycheck. Then get online and file your unemployment claim. Hopefully the claims are deposited directly into your checking account. Otherwise, you’re probably going to need to file a forwarding address order with the Post Office.
    What if you own your own business? Most likely you have a business interruption policy that will reimburse for overhead while your business is closed. Consider whether you are eligible for a FEMA grant or loan.

Negotiating with the insurance company – You will need to decide if you want to hire a public adjustor to negotiate on your behalf. They can be, and most likely are, compensated as a percentage of your insurance claim. That means a smaller settlement to you unless they negotiate a larger claim than you would have on your own.

Replacing personal property – I have always been interested in how a value is determined for lost personal property. The amount of coverage always seemed to be high in comparison to the dwelling insurance amount. It’s very difficult to pin down the standards for providing proof of loss. One source said that you could be asked to provide the title of every book lost. That got my attention. I went to the Department of Insurance and they provide some helpful advice. It appears that the date of purchase and the purchase price is required.
    Consider scanning and saving in the cloud receipts for major assets.
Did you know that the amount of your claim depends upon whether or not you replace personal property? Chose not to replace the property and you only receive the actual cash value, which is the price you paid less the depreciation of the value due to use or obsolesce. Don’t worry. You should have several months to replace your personal property.

Rebuilding your home – Indemnity versus reimbursement coverage, what does that mean for the policyholder owner? It’s the difference in saying, “My house burned down. Please pay me the policy limits” and walking away after you pay off the mortgage, versus being required to rebuild and needing your mortgage company to endorse any insurance check you receive. In addition, benefits are paid out in relation to the completion of the rebuild project. If costs rise significantly due to excessive demand for building contractors, you may find that you have to incur additional debt to rebuild your home to collect the insurance.

Be especially cautious during this time when hiring people to help you. One specific caution given by one contractor is beware of a company that says it will clean up the property for free. In one case such a contractor asks you to subrogate your rights on your insurance policy for the cost of demolition. And, they use a questionable method that could jeopardize the foundation make the rebuilding more expensive and take longer to complete.

Many policies have a clause or rider that increases the dwelling coverage by a percentage, i.e. if you have dwelling coverage of $500,000 with a provision to increase the coverage by 20%, you would effectively have dwelling coverage of $600,000. This increase of coverage is generally not tied to any additional requirements to qualify. Rather, these provisions are meant to help the insured deal with construction costs driven up by a common disaster like the Northern California fires. Ideally, your agent did not include this coverage when he considered your base amount of coverage needed. This is not an uncommon practice when competing on premium for the insurance business. And, hopefully your policy limits meet the coinsurance requirements, or your benefits will be reduced by the percentage to which you’re underinsured. Let’s say it was reasonable to assume that you could rebuild for $1 million, but you only had $700,000 of dwelling coverage, and your policy requires that you have at least 80% protection. You would receive only 7/8ths of the claim.

Some bestpractices to consider adopting are as follows:
    Review your coverage annually considering the square footage of your home, the standard of building and the local cost to rebuild.
    Make sure your basic dwelling coverage includes coverage to bring the home up to current building codes.
    Include a rider that will increase the amount of dwelling coverage if available.
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