March
1, 2008
How Well Do You Understand Your Fire Insurance Coverage?
By
Alandale Insurance Agency
The extent of the damage caused by
California
wildfires over the last few years has made it clear how important it
is to understand your fire insurance coverage before a disaster
happens. It’s also important to understand how to proceed if you
find yourself a victim of a large-scale fire.
In the immediate aftermath of a fire, you will need to take stock
of the situation and of its ramifications. If the disaster is
wide-scale, its sheer size creates two situations that will impact
your ability to rebuild:
· The price of building materials will increase as
the available supply is depleted and the demand for that supply
continues to grow.
· The available number of contractors will be
limited, resulting in their services commanding premium prices.
Under these circumstances, you must insist that your contractor
and insurance adjuster work together to reach an agreed-upon price
for reconstruction. Ask the contractor and adjustor to meet with you
at your home to write the construction cost estimate.
How much will your insurance cover? Your policy should pay the
cost to rebuild up to the insured amount if you insured your home
for 100% of its estimated replacement cost at the time you purchased
the policy. If you have an “Extended Replacement Cost”
endorsement, it will pay an additional 25% or more of the insured
amount. In addition, if you have a “Supplemental Building
Ordinance” endorsement, your policy will cover anywhere from 10%
to 100% of additional costs to bring the house up to date with any
new construction codes implemented since your house was originally
built.
To receive compensation for the contents of your home that were
destroyed in the fire, you will have to produce an inventory of the
items. For each item provide its description, age, life expectancy
and replacement cost, including sales tax. To verify the replacement
cost include the name of the store and salesperson, and the store
telephone number. If you obtained the price on the Internet, list
the web site address. Divide the age of the item by its average life
expectancy to calculate an average percentage of depreciation to be
deducted from each item. This will expedite the settlement process.
If your policy only covers replacement value, the adjuster will
pay you the withheld depreciation difference when you replace the
item with something comparable.
Your policy may also pay your additional living expenses,
including your rent and related expenses for a comparable furnished
living space, minus the expenses that are not a direct result of
your home being destroyed, such as utility bills and mortgage
payments. This coverage usually lasts up to 12 months, and the
maximum amount is generally 20% of the insurance limit on your home.
You also are entitled to living expenses coverage even if your
home isn’t damaged, but is uninhabitable because of a government
order. However, in this instance, the coverage ends when the
government permits you to return to your home.
Having the right insurance coverage in place can alleviate some
of the trauma of living through a fire disaster.
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