What I Learned From My Insurance Claim - Part 2

In my earlier post on Wednesday, I talked about my experience with the insurance company and what to do if you have damage to your property. If you missed the post, you can read it here.

Today, I will wrap up the insurance saga which exposed how little I know about insurance policies and claims. After you file a claim, the insurance company will send an insurance claim adjustor to your house to assess the damage, both the extent of the damage and the cause of the damage.

In our case, because of the water damage, the adjustor also offered the services of a company that does moisture clean up and restoration, which we accepted. Those guys swooped in and quickly tore up the walls and floors to place heaters and humidifiers and dry the house out. It took them several days before they declared that the house was safe with no trace of the scary mold stuff.

Meanwhile, the adjuster wrote up the claim and submitted it to the insurance company with the caveat, “the insurance company could approve or deny my estimates”, i.e. he was just the messenger.

While trying to plan the next move, we waited anxiously to hear from the insurance company regarding the amount they would pay for the claim. After a couple of weeks we received a letter stating “. . . because the policy provided coverage for “Replacement Cost Value” they would pay the claim less the deductible plus less the “depreciation” for all items marked for replacement.” What?

I had never heard of this “depreciation concept”. What exactly did it mean? Why, was this not mentioned when we filed the claim a few weeks before? Our insurance claims agent was not very helpful in explaining any of this to us. Not wanting to annoy her (since she was the one writing the check) we looked elsewhere for answers.

Well, apparently most policies are written this way - it’s in the fine print. And, this is how it works. If there are any items that the adjustor declares should be replaced, the insurance company will consider the age of the items in determining how much they will pay you upfront.

Remember the policy is a “Replacement Cost Value” policy. So if an old carpet is damaged, it means that the insurance company will try and assess the value of that old carpet and pay you for the value of that old carpet. They don’t want to pay you YET for a new carpet because that would be worth more than the old carpet that you owned. After all, you could decide not to replace the carpet at all.

If you actually replace the old, damaged carpet with new carpet and you want to be reimbursed for it, you have to show proof of replacement before they can pay you the “withheld depreciation”.

On the face of it, it makes sense. However, since we did intend to replace the damaged items, it meant a trip back to the now drained piggy bank to calculate if we could afford to make all the repairs, without the full check upfront. Not a pretty place to be. Once the repairs are completed and the paperwork submitted to the insurance folks, we trust that we will get the “withheld depreciation”.

What have I learned? Here’s my 2 cents:

1. Review all your insurance policies.
2. Study the fine print.
3. Understand the amount and type of coverage you have.
4. Understand the exclusions.
5. Determine the amount that you would have to pay in order to fully resolve a claim.
6. Determine if you need extra insurance to cover any gaps in your current insurance.
7. Shop around for lower rates and more generous replacement policies.

Then feed the piggy bank for a rainy day, and cross your fingers that it doesn’t rain.