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.

What I Learned From My Insurance Claim

It's been a tough month dealing with water damage in our house. But the worst part was the insurance process. If you have been unlucky enough to have to file a claim, I am sure you know the drill. If you haven't, I hope you never have to. I will spare you the drama, and simply share what I learned.

As soon as the damage happens (in this case a burst pipe caused severe water damage), take the steps to fix it immediately e.g. turn of the main water supply and call a plumber. And then before you call your insurance company, dig up your insurance policy and review it thoroughly. Determine exactly what the policy covers and more importantly what it does not cover.

Calling your insurance company is a double-edged sword. If you have extensive damage, you may not have enough money hidden under the mattress for the repairs, and so you will need to file a claim.

If the damage is minor, you are probably better off not filing a claim. Why, you may ask? Because you have to pay the “Dreaded Deductible”! Plus your insurance premiums will probably go up. Suddenly, your decision to take a higher deductible in exchange for lower premiums doesn’t seem like a good idea after all.

But what do you do when you don’t know how major the damage is? And especially when it is water damage and there is concern of mold? This is when it comes in handy to have contacts for a contractor who can quickly come in and give you an assessment of the repair costs.

Use that information to determine if you should file a claim. However, you have to do that before you call the insurance company. As soon as you inform them of the damage, and regardless of whether you file the claim, it goes on your record and your premiums will still go up. At the very least you will lose any “claim free discounts” you previously enjoyed which means that you will now be paying more for your premiums.

Anyway, once you decide to file a claim, call your insurance company and they will walk you through the next steps. Companies have different processes but in general they will ask you questions about the damage, how it happened and how you handled the situation.

It is very important that you demonstrate that you did everything you could to contain the damage and avoid further ruin to the property. Failure to do so can result in a smaller claim payment from the insurance company. So if you have water leak, get a shop vac and dry up the place and air it out. If your roof is damaged, put a tarp on it to avoid water damage in case it rains.

And please don't lie, it ain't right; but even if your conscience won’t keep you up at night, know that you will surely be caught and the consequences are dire. Not only will they deny your claim but filing fraudulent claims is against the law. I doubt you want to go to jail.

So having checked under the mattress and raided the piggy bank, we determined we had enough money for the high deductible and could afford to file the claim . . . only to find out that we needed to come up with more money! What? Why? How did this happen?

Stay tuned for the next post. In the meantime, please let me know what, if anything, I should have done differently.