Insurance understanding is key to recovery

by Sheli Ellsworth

Longtime Ventura resident Susan Lang was prepared for disaster. “We prided ourselves that we had a ‘go bag’ ready in the garage in case of an earthquake plus having scanned our important documents, installed various back-up systems, and housed several external drives at other locations.” The hungry Thomas fire destroyed her home on Via Cielito. “Having lost our entire home and contents is a bit cathartic. Forty-two years ago, we started with nothing and we will start again with nothing.  I say we are newlyweds again.”

But what next? For Lang and most of the over-400 families who have lost their homes, the challenging task of rebuilding hinges on homeowner insurance.

Mortgage companies require that homes be insured for fire losses. Once a home is paid off, it is the owner’s discretion to maintain insurance. In California, a home is insured for original appraisal value or replacement value (which could include code-upgrades) minus depreciation for wear and tear. Depreciation is recoverable on replacement cost policies.

While property in California is expensive, much of the value is the lot and not the actual building. An $850,000 property might only be insured for the $200,000 cost to rebuild the home. Because of ever-increasing materials and labor costs, a cash value policy may not have kept up with the cost of rebuilding. Thousand Oaks veteran claims processor, Keith Wade says, “Homeowners should always have Replacement Cost Value policies. It’s the only thing that makes sense for catastrophic loss.” Wade recently returned from Florida where he processed hurricane claims for Universal Property and Casualty. “I worked for State Farm for 23 years, I’ve seen homeowners lose almost everything because they were under insured. Homeowners should always ask for replacement insurance because it isn’t automatic.” Smoke damage is also covered by homeowner policies. Ventura homeowners who opted for lower premiums may find themselves unable to replace their homes. Wade says that sometimes FEMA steps in to help cover losses for qualified homeowners.

Homeowners also have a $500-2500 deductible which is subtracted from the settlement. A home’s contents are additionally covered as a percentage of the home’s value—usually by another 40-75%. “In a total loss, if you have a Cash Value policy, the insurance company will most likely cash-out and write you a check,” according to Wade. Temporary housing expenses are covered under the Additional Living Expense (ALE) of the policy for either a percentage of the home’s value (not the property value), or the actual cost of the expenses with proof. ALE coverage is in addition to the amounts available to rebuild or repair your home. “Insurance companies will provide temporary housing in line with the quality and kind of the insured’s standard of living at the time of the loss.”

Homeowners are expected to continue making mortgage payments while receiving ALE for a hotel or other temporary housing. In State of California v. Allstate Insurance Company, the court ruled that this benefit is “objectively reasonable expectation of the insured.” Payouts of ALE should begin soon after the claim is made. Insured  California homeowners have 24 months to spend their ALE benefit unless weather, building codes or permits delay the repair or rebuilding.

How do I get my hair straightener replaced?  Owners who reside in a home will have content coverage. If a home is valued at $200,000 and content coverage is, say, 50%, a homeowner can expect to have an additional $100,000 for replacing the home’s contents. There is no additional deductible on content coverage. Insurance companies usually pay an advance to help victims begin to immediately replace necessary items. Once the items are purchased, insured homeowners can submit receipts and collect the remainder called “recoverable depreciation”. The value of items is usually determined by a consumer depreciation guide. However, without RCV or a Replacement Cost Value policy, used items like hair straighteners may have little or no value.

Smaller purchases may not need proof of replacement, but some insurance companies will ask for receipts, especially if the cost is beyond average market prices like collectibles. In these cases, an inventory, photos, videos and certified appraisals can substantiate a claim. The loss of items like jewelry, cash and firearms can be excluded (not covered) or covered under separate policy limits.

California Department of Insurance is at the Poinsettia Pavilion to answer your questions and have the following handouts: So You’ve Had An Accident What’s Next, Residential Property Claims Guide and Home Inventory Guide.

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