Insurance Information Institute

Settling Insurance Claims After a Disaster

You bought insurance to take care of emergencies and insurance

companies want you to be satisfied with the way they honor their

part of the contract.  This brochure will help you understand:



  how to file a claim if you haven't already done so



  how the claim process works



Below are some important things to remember as the rebuilding

process proceeds.



  You can contact your adjuster again if you have additional

information or find some damage you hadn't noticed before.



  If you believe the settlement offer made by your insurance

company is not a fair one, contact the company.  Present

information to back up your claim.



  Your settlement probably won't be the same as your neighbor's. 

Your insurance policy may be different and the amount of damage to

your home may be different even though you live on the same street.



  Protect yourself from shoddy workmanship.  Use only licensed,

reputable contractors and be sure they get the proper building

permits.  Beware of contractors who ask for a large amount of money

up front and contractors whose bids are amazingly low - they might

cut corners and leave you with a construction or building code

problem after they're gone.



  Your insurance policy will pay to repair or replace the property

you had before the hurricane.  But it won't pay for expensive

improvements like a tile roof if you had a standard fiberglass roof

before.



  If your home was destroyed beyond repair, and you decide to

rebuild on another lot, to purchase another house instead of

rebuilding, to rebuild in another state or to rent rather than

rebuild, check your policy under Section 1, Conditions, Loss

Settlement or talk to your insurance agent or company

representative.  There may be limitations on what your insurance

company will pay if you don't rebuild on the same piece of land.





How to make the insurance claims process work for you





Make temporary repairs



     If your home is badly damaged but can be repaired, do what you

can immediately to prevent further weather-related damage.  Cover

with plastic or board up holes in the roof, walls, doors and

windows.  Be careful not to risk your own safety in making the

repairs.  Your insurance company will reimburse you for the cost of

your repairs, so keep the receipts for any materials you buy.



     Beware of building contractors that encourage you to spend a

lot of money on temporary repairs.  Remember that payments for

temporary repairs are part of the total settlement.  If you pay a

contractor a large sum for a temporary repair job, you may not have

enough money for permanent repairs.



     Don't make extensive permanent repairs until after the claims

adjuster has been to your home and assessed the damage.  Avoid

using electrical appliances, including stereos and television sets,

that have been exposed to water unless they've been checked by a

technician.





Call your insurance agent or insurance company's 800 number



     Report the damage to your insurance agent or insurance company

representative.  Most homeowners policies cover additional living

expenses as well as repairs to your damaged home and your personal

possessions.  Your insurance company will advance you money if you

need temporary shelter, food and clothing because you can no longer

live in your home and your clothes have been ruined.  It will also

advance you money if you need to replace major household items

immediately to continue living there.  The payments will be part of

the final claim settlement.  Let your insurance company know where

you can be reached so that the claims adjuster can give you a

check.  Keep receipts for what you spend.



     Make sure the check for additional living expenses is made out

to you and not your mortgagee - the bank or other mortgage lender. 

This money has nothing to do with repairs to your home and you may

have difficulty depositing or cashing the check if you can't get

the mortgage lender's signature.



     If your car was damaged and you have "comprehensive" coverage

in your auto insurance policy, you should also contact your auto

insurance company.  Some companies use a drive-in claims center

where an adjuster will assess the damage and often pay the claim

immediately.





Prepare for adjuster's visit



     Personal property:  The claim process may begin in one of two

ways.  Your insurance company may send you a claim form, known as

a "proof of loss form," to complete.  Or an adjuster may visit your

home first, before you're asked to fill out any forms.  (An

adjuster is a person professionally trained to assess the damage.) 

In either case, the more information you have about your damaged

possessions -a description of the item, date of purchase and what

it would cost to replace or repair - the faster your claim

generally can be settled.



     Make lists of the damaged items.  If possible, take

photographs of the damage, and put together a set of records - old

receipts, bills and photographs - to help establish the price and

age of everything that needs to be replaced or repaired.  Write

down brand names and model numbers of appliances and electronic

equipment.  Don't forget to list items such as clothing, sports

equipment, tools, china and linens, outside furniture, holiday

decorations and hobby materials.



     Don't throw out damaged furniture and other expensive items as

the adjuster will want to see them.



     If your property was destroyed or you no longer have any

records, you will have to work from memory.  Try to picture the

contents of every room and then write a description of what was

there.  Try also to remember where and when you bought each piece

and about how much you paid.  It may also speed up the settlement

of your claim if you find out how much it will cost to replace the

destroyed items.



     Building Damage:  Identify the structural damage to your home

and other buildings on your premises, like a garage, toolshed or

inground swimming pool.  Make a list of everything you would like

to show the adjuster when he or she arrives - for example, cracks

in the walls, damage to the floor or ceiling and missing roof

tiles.  If structural damage is likely even though you can't see

any signs of it, discuss this with your adjuster.  In some cases,

the adjuster may recommend hiring a licensed engineer or architect

to inspect the property.  You should also get the electrical system

checked.  Most insurance companies pay for such inspections.



     If possible, get written bids from reliable, licensed

contractors on the repair work.  The bids should include details of

the materials to be used and prices on a line-by-line basis.  This

makes adjusting the claim faster and simpler.



     Give yourself several days before the adjuster arrives to

complete your lists.  It will take time to assess the damage. 

Although you can always notify the adjuster of any additional items

you overlooked, this may slow up your claim settlement.  Be sure to

keep copies of the lists and other documents you submit to your

insurance company.  Also keep copies of whatever paperwork your

insurance company gives you.



     Homeowners insurance policies usually don't cover flood

damage.  You need a separate flood insurance policy.  If you have

flood insurance through the federal government's National Flood

Insurance Program - available through most insurance agents - your

homeowners claim adjuster may coordinate claims for flood damage

with other damage claims.









Determining the claim settlement amount



     Settlements for the damage to your dwelling and the contents

of your home may be based on replacement cost or actual cash value. 

The settlement amount will depend on which type of policy you

bought.



     The Difference between Replacement Cost and Actual Cash Value: 

Replacement cost is the dollar amount needed to replace a damaged

item with one similar kind and quality without deducting for

depreciation - the decrease in value due to age, wear and tear and

other factors.  An actual cash value policy pays the amount needed

to replace the item minus depreciation.



     Suppose, for example, a tree fell through the roof onto your

eight-year-old washing machine.  If you had a replacement cost

policy for the contents of your home, the insurance company would

pay to replace the old machine with a new one.  If you had an

actual cash value policy, the company would pay only a percentage

of the cost of a new washing machine because a machine that has

been used for eight years would be worth less than its original

cost.  Suppose, also, that the tree damaged your 15-year-old roof

so badly that it had to be completely replaced.  If you had a

replacement cost policy, the insurance company would pay the full

cost of installing a new roof.  If you had an actual cash value

policy, it would pay a smaller percentage of the cost of replacing

it.

     

     Guaranteed Replacement Cost:  If your home was damaged beyond

repair, a typical homeowners policy will pay to replace your home

up to the limit of the policy.  Where the value of your insurance

policy has kept up with increases in local building costs, a

dwelling like the one that was destroyed generally can be rebuilt

for an amount that's within the policy limit.  However, some

insurance companies offer a "guaranteed" replacement cost policy

that will pay whatever it costs to rebuild your home as it was

before the disaster, even if it exceeds the policy limit.  If you

have a guaranteed replacement cost policy, and building costs

suddenly go up because there's a shortage of building materials or

construction workers, for example, you insurance company will pay

the money to cover the unexpected jump in costs.  But it won't pay

for a house that's better than the one that was destroyed.



Mobile Home Policies:  If you own a mobile home, you may have a

policy based on replacement cost, actual cash value or a "stated

amount."  With a stated amount policy, the maximum amount you

receive if your home is destroyed is the amount you agreed to when

the policy was issued.  The depreciation in the value of your home

is not considered in the settlement.



Inadequate Insurance Can Affect the Settlement Amount:  The value

of most peoples' insurance policies is adequate because the

policies usually include an inflation-guard clause to keep up with

increases in local building costs.



     When you have replacement cost coverage and there's no

question about whether you have sufficient insurance, your

insurance company will pay the full cost of repairing or replacing

the damaged structure with a building of "like kind and quality." 

In other words, if you were adequately insured and lived in a

three-bedroom ranch before the disaster, your insurance company

would pay to build a similar three-bedroom ranch.



     Most insurance companies recommend that a dwelling be insured

for 100 percent of replacement cost so that you have enough money

to rebuild if your home is totally destroyed.  But some insurance

policies say that as long as the dwelling policy limit at the time

of the disaster was 80 percent of the replacement cost, the

insurance company will pay the smaller of two amounts:  the actual

amount needed to replace or repair your home or the limit on the

policy.



     What does this 80 percent requirement mean?  Let's take a home

that was damaged but can be repaired.  Suppose, for example, that

it would cost $100,000 to rebuild your home and it was insured for

$80,000 at the time of the disaster (80 percent of replacement

cost).  If the repair bill came to $20,000, the insurance company

would pay the full cost of repairing the damage - minus your

deductible - because you had complied with the 80 percent

requirement and the repair bill was less than the policy limits. 

There would be no deduction for depreciation.



     What happens if you have this kind of policy and you weren't

insured for 80 percent of the home's replacement cost before the

disaster?  Your insurance company generally will pay only part of

the loss.  Let's say your $100,000 home was insured for $60,000 (75

percent of the amount necessary).  The insurance company would pay

the larger of two amounts:  either 75 percent of the $20,000 repair

bill ($15,000, less your deductible) or the "actual cash value" of

the part of the building that was destroyed.



     What happens if your home is totally destroyed?  Your

insurance company will pay up to the limits of the policy to

rebuild it.  So if your dwelling policy limit is less than 100

percent of replacement cost, you run the risk of not having enough

money to replace your old home with one of equal size and quality.



Additional Living Expenses:  If you can't live in your home because

of the damage, your insurance company will advance you money to pay

for reasonable additional living expenses - the amount that it

costs your household to live somewhere else while your home is

being repaired or rebuilt minus what you would have normally spent

if you had been living at home.



     The maximum amount available to pay for such expenses is

generally equal to 20 percent of the insurance on your home.  So on

a home insured for $100,000, up to $20,000 would be available. 

This amount is in addition to the $100,000 to pay for repairs or to

rebuild your home.  Some insurance companies pay more than 20

percent.  Others limit additional living expenses to the amount

actually spent during a certain period of time, such as 12 months,

instead of a maximum percentage of the policy limit.



     Among the items typically covered are extra food costs,

increased housing costs, telephone or utility installation costs in

a temporary residence, extra transportation costs to and from work

or school, relocation and storage expenses and furniture rental for

a temporary residence.



     Insurance policies often discuss additional living expenses

under the heading "loss of use."  Some mobile home insurance

policies limit extra living expenses to a time period - usually

three months - rather than a percentage of the policy amount.



Automobiles:  If your car has been so badly damaged by the disaster

that it's not worth repairing, you will receive a check for the

car's actual cash value - what it would have been worth if it had

been sold just before the disaster.  Your local bookstore or

library may have used car price guides that will give you an idea

of what your car was worth.



Trees and Shrubbery:  Most insurance companies will pay for the

removal of trees that have fallen on your home but they won't pay

to remove the trees that have fallen and haven't caused damage to

your home.  They won't pay to replace trees or shrubbery that have

been damaged in a storm.  Why is this kind of damage excluded? 

High winds cause so much damage to trees and shrubs every year,

that if trees and other landscaping were covered, homeowners

insurance would be unaffordable.  Most policies pay a certain

amount to replace trees and shrubs destroyed by fire and some other

causes of damage.



Water Damage:  Homeowners policies don't cover flood damage but

they do cover other kinds of water damage.  For example, they would

generally pay for damage from rain coming through a hole in the

roof or a broken window as long as the hole was caused by a

hurricane or other disaster covered by the policy.  If there is

water damage, check with your agent or insurance company

representative as to whether it is covered.



The Settlement Amount If You Don't Rebuild:  If your home was

destroyed, you have several options.  You can rebuild your home on

the same site.  Or you can sell the land your old home was built on

and build in a different place, even another state.  Or you may

decide that you would rather rent a home than rebuild the one that

was destroyed.  If you decide not to rebuild, the settlement amount

depends on state law, what the courts have said about this matter

and the kind of policy you have.  Read your policy carefully if you

decide not to rebuild and find out from your insurance agent or

company representative what the settlement amount will be based on. 

Generally, you are only entitled to the replacement cost of your

former home if you spend that amount of money on the home you

rebuild.

     A similar rule applies to repairs.  Suppose you decide, say,

to change the kitchen flooring materials when you rebuild.  If, for

example, you replace your expensive floor with materials that are

cheaper but more practical, you are not entitled to the difference

in cash.  Unless the cost of repairs is a small amount, your

insurance company may initially pay you a sum equal to the actual

cash value.  It will withhold the balance of the full replacement

cost amount until after the repairs are completed.



Compliance with Current Building Codes:  Building codes require

structures to be built to certain minimum standards.  In areas

likely to be hit by hurricanes, for example, buildings must be able

to withstand high winds to reduce the risk of hurricane damage.  If

your home was damaged and it was not in compliance with current

local building codes, you may have to rebuild the damaged sections

according to current codes.  In some cases, complying with the code

may require a change in design or building materials and may cost

more.  If you live in an area likely to be flooded, you may have to

comply with federal codes which require buildings to be raised

above flood level.  Generally, homeowners insurance policies won't

pay for these extra costs but some insurance companies offer an

endorsement that pays for these extra costs but some insurance

companies offer an endorsement that pays a specified amount toward

such changes.  (An endorsement is a form attached to an insurance

policy that changes what the policy covers.)



Public Adjusters:  Your insurance company provides an adjuster at

no charge to you.  You also may be contacted by adjusters who have

no relationship with your insurance company and charge a fee for

their services.  These are known as public adjusters.  You may use

a public adjuster to help you in settling your claim with the

insurance company adjuster.  But remembers that the public adjuster

may charge you as much as 15 percent of the total value of your

settlement for his or her services.  The fee isn't covered by your

insurance policy.  Sometimes after a disaster, the percentage that

public adjusters may charge is set by the insurance department.



     If you decide to use a public adjuster, first check his or her

qualifications by calling your state insurance department.  Ask

your agent, a lawyer or friends and associates for the name of a

professional adjuster they can recommend.  Avoid individuals who go

from door to door after a major disaster unless you are sure they

are qualified.



Settling the claim



Disasters make enormous demands on insurance company personnel. 

Your adjuster generally will come prepared to do a thorough and

complete study of the damage to your home.  Sometimes after a major

disaster, state officials request insurance company adjusters to

see everyone who has filed a claim before a certain date.  When

there are a huge number of claims, the deadline may force some

adjusters to "scope the loss."  If your adjuster doesn't make a

complete evaluation of the loss on the first visit, try to set up

an appointment for a second visit.



     The first check you get from your insurance company is often

an advance, not a final payment.  If you're offered an on-the-spot

settlement, you can accept the check right away.  Later on, if you

find other damage, you can "reopen" the claim and file for an

additional amount.  Most policies require claims to be filed within

one year from the date of disaster.  If you do reopen your claim,

remember that your insurance company won't pay more than the limits

of the policy, unless you have a guaranteed replacement cost

policy.



     Some insurance companies may require you to fill out and sign

a "proof of loss" form.  This formal statement provides details of

your losses and the amount of money you're claiming and acts as a

legal record.  But some companies waive this requirement after a

disaster if you've met with the adjuster, especially if your claim

is not complicated.



     The choice of the repair firm is yours.  The insurance company

won't pay for you to upgrade your home.  But if your home was

adequately insured, you won't have to settle for anything less than

you had before the disaster.  Be sure the contractor is giving you

the same quality materials.



     Don't get permanent repairs done until after the adjuster has

approved the price.  If you've received any bids, show them to the

adjuster when he or she arrives.  If the adjuster agrees with one

of your bids, then the repair process can begin.  Check with your

local government offices about getting building permits and find

out whether (and at what stages in the rebuilding process) work

must be inspected.



     If the bids are too high, ask the adjuster to negotiate a

better price with the contractor you would like to use.  Adjusters

may also recommend firms that they have worked with before.  Some

insurance companies even guarantee the work of firms they recommend

but such programs are not available in every locality.



If You Can't Reach an Agreement with Your Insurance Company:  If

you and your adjuster can't agree on a price, whether it involves

a minor repair job or the complete rebuilding of your home, first

contact your agent or your insurance company's claim department

manager.  Make sure you have figures to back up your claim for more

money.



     If you and your insurance company still disagree, your

insurance policy allows for an independent appraisal of the loss. 

The independent appraisal process is explained in your policy.  You

hire an independent appraiser and your insurance company also hires

an independent appraiser.  Together the appraisers choose an

umpire.  The decision of any two of these people is binding.  You

and your insurance company each pay for your own appraiser and

share the other costs.  However, disputes rarely get to this stage.



     Some insurance companies may offer you a slightly different

way of settling a dispute.  This is called "arbitration."  When

settlement differences are arbitrated, a neutral "arbiter" hears

the arguments of both sides and then makes a final decision.



     Or you can call your state insurance department's consumer

helpline for assistance.



Paying for home repairs and personal property



When both the dwelling and the contents of your home are damaged,

you generally get two separate checks from your insurance company. 

If your home is mortgaged, the check for home repairs will

generally be made out to you and the mortgage lender (mortgagee). 

As a condition of granting a mortgage, lenders usually require that

they are named in the homeowners policy and that they are a party

to any insurance payments related to the structure.  The lender

gets equal rights to the insurance check to ensure that the

necessary repairs are made to the property in which it has a

significant financial interest.  The same is true for banks that

provide car loans.



     This means that the mortgage company or bank will have to

endorse the check.  Lenders generally put the money in an escrow

account and pay for the repairs as the work is completed.  You

should show the mortgage lender your contractor's bid and say how

much the contractor wants up front to start the job.  Your mortgage

company may want to inspect the finished job before releasing the

funds for payment.  Sometimes the lender allows its name to be left

off the check as long as the repair firm's name is on it.



     If you don't get a separate check from your insurance company

for the contents of your home and other expenses, the lender should

release the insurance payments that don't relate to the dwelling. 

It should also release funds that exceed the balance of the

mortgage.  State bank regulators often publish guidelines for banks

to follow after a major disaster, setting out how these and other

matters should be handled.  Contact state offices to find out what

these guidelines are.



     Some construction firms require you to sign a form that allows

your insurance company to pay the firm directly.  Make certain that

you're completely satisfied with the repair work and that the job

has been completed before signing any forms.  Remember, you won't

receive a check for the repair job.  The form will bill your

insurance company directly and attach the "direction to pay" form

you signed.



     If you have a replacement cost policy for your personal

possessions, you normally need to replace the damaged items before

your insurance company will pay you their replacement cost.  If you

decide not to replace some items, you will be paid their "actual

cash value."  You don't have to decide what to do immediately. 

Your insurance company will generally allow you several months from

the date of the cash value payment to replace the item and collect

full replacement cost.  Find out how many months you are allowed. 

Some insurance companies supply lists of vendors that can help

replace your property.



     After your claim has been settled and the repair work is

underway, take some time to evaluate your homeowners insurance

coverage.  Was your home adequately insured?  Did you have

replacement cost coverage for your personal property?  Talk to your

insurance agent or company representative about possible changes.