After the Storm: Now What?
Now that superstorm Sandy has settled down, those of you who have suffered a loss, need to make sure you understand exactly how your insurance will and will not work.
First, I want to say that it is entirely possible that due to the severity of this storm that many of your insurance companies may not stick to the letter of the contract. They very well may be more lenient than expected. One piece of good news is that NY GOV CUOMO announced that NY homeowners will not have to pay the hurricane deductibles that I talk about below because Sandy did not reach hurricane force winds. As I said that is good news and lets hope that is true for all states. But regardless it is important to understand how your insurance works so that you are prepared for the what if's of life if they happen again. Please know that this information has been compiled for you to simply use as a guideline. The true bottom line will depend on your adjuster, your insurance company and how they decide to treat this extraordinary disaster.
Just to make sure I was not missing anything, I contacted my own insurance agent, Ramona Johanneson, who works for Farallone Pacific Insurance in Northern California, and she called and personally talked to many adjusters. We have put together a Q&A based on their answers to hopefully help you better understand your insurance policies and what you can expect.
Please read them and save them for future reference.
Q. How do I know if I am covered for this loss?
A.That will depend on two things. Number one, what created the loss that you have: was it the hurricane? Was it the flood? Was it the fire?
Number two, are you covered for that loss under your policy? Most insurance policies have a list of what is a covered loss and what is excluded from your coverage.
But here is what I want to tell you — and it does not make me happy to be the one to deliver this news:
What you need to do to know if you are covered or not is to read your policy or ask your agent. The reason for this is that not all homeowner policies include the same coverage. There are so many different types of policies sold and it isn't a hard and fast answer. It really varies by state and then by certain areas within a state.
The other problem is that a hurricane isn't really "just a big windstorm," so even if a homeowner's policy includes coverage for "wind," there is the problem that hurricanes generally bring water … which means flooding.
So, let's say a homeowner's policy includes "windstorm" coverage and there is a hurricane — yay right? Not so, if there is flooding and a separate flood insurance policy wasn't purchased, it is probable that no coverage is going to be afforded. You need to talk to your insurance agent sooner than later.
Q. I see I am covered for hurricanes but it says I have a deductible of 5 percent. What does that mean?
A. First let's make sure you understand what a deductible is. The deductible is the amount you will be required to pay out of pocket before your insurance coverage kicks in. A hurricane normally has a different deductible — or the amount that you have to pay out of your own pocket — than other perils such as theft, fire etc. That deductible can be 2 percent, 3 percent, 5 percent, etc. of "the dwelling limit" on your policy. Please note that the dwelling limit was determined by the agent or insurance company at the time the policy was written. The dwelling limit was not determined by you. The dwelling limit can be found in the policy declarations.
So, if a home has a dwelling limit of $300,000 and the hurricane deductible is 5 percent, and you have a $25,000 loss due to Sandy, here is how it could work. You take the value of your dwelling limit — $300,000 and multiply that by 5 percent (your hurricane deductible), which is $15,000. If the insurance companies stick to that 5 percent, they will give you a check for $10,000. Why $10,000? Your deductible of $15,000 plus $10,000 equals $25,000 which was your loss.
Now, please note: While this is a very simple explanation of a deductible, Ramona was told by adjusters and claims managers that she spoke with today, that because of the severity of superstorm Sandy they could not predict at this point in time, how, when, under what circumstances, etc. the deductible would be collected, payment made, etc. So my advice to all of you would be to know exactly how your policy is written, but keep in mind that it is totally possible that you may do much better than that. Again it will all depend on your company and how they view this.
Also it is possible in your area that wind speeds, or other factors for determining a hurricane, did not get to the point of a true hurricane and the higher hurricane deductible may not apply.
PLEASE NOTE THAT EACH STATE IS GOVERNED BY DIFFERENT LAWS SO THIS IS NOT A ONE ANSWER FITS ALL. PLEASE CLICK HERE AND LOOK TO THE STATE THAT YOU LIVE IN
Q. What happens if I do not have the money after the deductible to fix up my home then what can I do?
A. If, as in the example above, you have $25,000 of damage but your insurance company after the deductible will only give you a check for $10,000, then to get the additional $15,000 you may need to do the following:
FEMA or state government programs may offer special assistance; your insurance agent should be a good source of information in the coming days and weeks etc... In NY it was just announced that FEMA may be able to give you up to $31,000 per home but you need documentation. So take pics, etc. Make sure you document all your losses.
Next, home and business owners may be able to use disaster assistance loans from the U.S. Small Business Administration which will lend money at 4 percent (if you qualify). Many flood victims living in federal disaster areas will also be eligible to receive aid, under certain circumstances.
What is key when it comes to the SBA disaster assistance loan is for you to pay close attention to deadlines and to apply quickly. It is better for a homeowner, business owner or renter to be approved for an SBA disaster loan and decide they don't want it than realizing they need it and finding out it is too late. One SBA spokesman said, "We don't want people to wait and see if they get insurance. They can go ahead and apply." To find out more, please use the link below.
Learn More: About SBA Disaster Loans
Q. What happens if I do not have flood insurance?
A. Once the president designates an area as a major disaster zone, it makes the residents of that area eligible for FEMA assistance: that includes rental assistance and low-rate loans to deal with repairs etc Residents and business owners can begin applying for grants that may be offered by registering online at disasterassistance.gov or by calling (800) 621-3362. You have to act quickly to make sure that you are in there before the money is used up however. So just apply right away do not wait. Also you might want to consider applying as well for the SBA disaster assistance loan that was mentioned above.
Q. What happens if a tree fell on my car? Is that covered by my car insurance or my home insurance?
A. Automobile insurance.
An auto-insurance policy covers damage to your car by a falling tree, as long as your auto policy includes comprehensive coverage. The damage to your car will be subject to the comprehensive deductible shown on the policy. Please note that it does not matter where the car was parked. Even if your car was parked in your driveway of your home, the comprehensive coverage on an automobile policy will still be the one to pay for it, not your homeowners insurance.
If you have an old car and are covered for just liability, no coverage is available. So please check to see what kind of automobile insurance you have.
Q. What is the difference between the comprehensive coverage on an automobile insurance policy and liability coverage on an automobile insurance policy?
A. Comprehensive coverage on a car insurance policy is "comprehensive" as its name implies. Comprehensive coverage is optional. It pays for damage to your own vehicle from causes other than car accidents, such as vandalism, natural disasters, collisions with animals and theft. Coverage for a falling tree hitting the car is covered by the comprehensive coverage on car insurance.
Liability coverage on a car insurance policy pays for damage you do to others when you cause a car accident.
Q. Do all insurance policies cover you if you have to go live somewhere else because your house now is uninhabitable?
A. All homeowner's policies I've ever seen or heard of include loss of use or additional living expense coverage. (These mean the same thing; some insurers list on the policy as loss of use and some list on the policy as additional living expense).
This coverage varies widely by insurer. The most common limit is "20 percent of the dwelling limit," so if a home has a dwelling limit (or "coverage A" limit as it is referred to) of $300,000, the maximum coverage for living elsewhere is up to $60,000.
Note that you really need to read closely what the provisions are for this coverage to apply. If the reason the home is uninhabitable is because of flood, there likely won't be coverage because flood isn't covered under a homeowner's policy. Also, a flood policy doesn't provide coverage for a policyholder to live elsewhere. However, if a storm's heavy winds rip away part of the roof over a bedroom, it would probably leave the home uninhabitable for a time.
Please note: No matter how uncomfortable a power outage might be, a home left without electricity isn't considered to be uninhabitable (if there is a forced evacuation, this is a separate topic and coverage might apply).
Homeowners don't have to wait for an adjuster to visit to seek shelter in a hotel if damage has made the home impossible to live in — keeping in mind, however, there is a limit on the coverage for additional living expenses in most policies.
Q. What is renter's insurance and does it also provide for loss of use?
A. If an individual is renting a home, apartment, condo, etc. and they have purchased a renter's policy, the coverage will be similar to that of a homeowner's policy, with the exception of coverage for the actual structure. The owner/landlord of their residence will have insured the building and likely the appliances. The owner/landlord will not have insured the possessions of the tenant, as "no insurable interest" exists: you can't insure things you don't own.
If a tenant has purchased renter's insurance, most all of the coverages that are included in a homeowner's policy for contents, loss of use/additional living expense, personal liability and medical payments apply. The policy will clearly state what the deductible is and if there is a separate wind or hurricane deductible.
Damage caused by Sandy will likely be to the possessions, whether they are wet due to a roof being ripped off by wind or water rising and flooding the residence. Or perhaps they were destroyed because of fire, or stolen due to criminal activity. It is important to note that in order for the coverage to be given by an insurer, the loss from the storm has to be a covered loss and exceed the policy deductible. If, for example, the house that is rented is flooded due to rising water or a surge of water and no flood insurance policy was purchased by the renter to cover the contents, then no coverage exists. This is true, even if the owner/landlord of the home purchased flood insurance to cover the building.
If an individual purchased renter's insurance and there is damage to their contents, coverage will apply, up to the limit of the policy, if the type of loss is a covered loss, less the deductible. For example, if a living room, bedroom and dining room full of furniture, and closet full of clothes sustained water damage because the roof was torn off in the wind, and the value of the damaged items is $25,000, the insurer will pay $24,000 to replace the damaged items if there is a $1,000 deductible on the policy. If there isn't a separate wind or hurricane deductible listed on the policy, then the only deductible that applies is the "all perils deductible" listed on the policy.
Note that, as stated above, most renters' insurance policies include loss of use/additional living expense coverage. The limit for this coverage will be shown on the declarations page of the policy. A typical limit is 20 percent of the contents limit. So, if an individual has purchased $50,000 in contents coverage, they will have $10,000 of coverage for living expenses (i.e. hotel or other temporary shelter, extra food costs, etc.) if their rented residence is uninhabitable due to a covered loss.
Q. What can I do to help move my claim along quickly?
A. 1) Call your insurance company to report a claim promptly.
2) Work closely with the adjuster.
3) Don't "pad the claim" with extras that can't be explained or verified.
In addition, before meeting with the adjuster, take pictures of damage, have receipts for emergency repairs and other emergency expenses ready, etc. … these will be helpful and can move the claim along quickly and allow for a fair settlement.
Q. How does flood insurance work?
A. Flood insurance policies cover physical damage to property and possessions due to flood. The National Flood policy covers damage for up to $250,000 to the structure of a home and $100,000 for personal possessions. Note that the NFIP policy provides "replacement" cost coverage for the structure, but only "actual cash value" coverage for possessions. Flood insurance has to have been in place for at least 30 days prior to an event, unless the home was just recently purchased and flood coverage required by a lender at the close of escrow. You cannot buy flood insurance the day before you know you are going to be hit by a flood. So please plan beforehand for such an event.
Q. What does flood insurance cover?
A. Building property:
• The insured building and its foundation
• Electrical and plumbing systems
• Central air-conditioning equipment, furnaces and water heaters
• Refrigerators, cooking stoves and built-in appliances such as dishwashers
• Permanently installed carpeting over unfinished flooring
• Permanently installed paneling, wallboard, bookcases and cabinets
• Window blinds
• Detached garages (up to 10 percent of building property coverage); detached buildings (other than garages) require a separate building property policy
• Debris removal
Personal contents property:
• Personal belongings, such as clothing, furniture and electronic equipment
• Portable and window air conditioners
• Portable microwave ovens and portable dishwashers
• Carpets that are not included in building coverage
• Clothing washers and dryers
• Food freezers and the food in them
• Certain valuable items such as original artwork and furs (up to $2,500)
Q. What's not covered by flood insurance?
A. • Damage caused by moisture, mildew or mold that could have been avoided by the property owner
• Currency, precious metals and valuable papers such as stock certificates
• Property and belongings outside of an insured building such as trees, plants, wells, septic systems, walks, decks, patios, fences, seawalls, hot tubs and swimming pools
• Living expenses such as temporary housing
• Financial losses caused by business interruption or loss of use of insured property
• Most self-propelled vehicles such as cars, including their parts (see section iv.5 in the flood policy)
Q. If I live in an apartment or room that is below the lowest elevated floor or in the basement will my flood insurance cover me?
A. Coverage is limited in basements regardless of zone or date of construction. It's also limited in areas below the lowest elevated floor, depending on the flood zone and date of construction. These areas include:
• Crawl spaces under an elevated building
• Enclosed areas beneath buildings elevated on full-story foundation walls that are sometimes referred to as "walkout basements"
• Enclosed areas under other types of elevated buildings
Q. What happens if my house caught fire during the hurricane? Is it covered under the fire coverage on my homeowner's insurance or will my insurance company say the hurricane caused the fire to make me pay the higher hurricane deductible?
A. Every claims adjuster and manager I spoke to was unwilling to answer this question. The reason is that proximate cause of loss is relevant (and varies), and what triggered the fire initially will be important, not just the fact that there was a "hurricane" in the area. Each state and each policy will have provisions about WHAT a hurricane is and say, for example, the wind was 72 mph in one place and 75 mph in another and the trigger to be considered a hurricane is 74 mph, things will get tricky.
What is paid by one insurer could differ from another insurer and could even differ from one address to another. Also, every adjuster stated that in past storms/hurricanes of this magnitude involving so many states and policyholders, that the policy contracts were not followed. Insurers paid for many things not included in the policy contract and waived deductibles in many instances, liberalized exclusions, enhanced coverage, etc. Adjusters feel this will be the case with this storm and that some policyholders will receive far more than their policy contract states they will – previous actions on prior claims substantiate what the adjuster's anticipate.
Q. Are there tax write-offs for my property losses that are not covered by insurance?
A. If you have property losses not covered by insurance, or not fully covered by insurance, then there are actions that you need to take, for you may qualify for a tax deduction. You need to know the fair market value of your home before Sandy hit and what it is now worth after Sandy, before any of the repairs are done. For instance, if your home was worth $400,000 before Sandy and is now worth $200,000 after Sandy, you have lost $200,000 in value because of the disaster. If you simply take any insurance proceeds you received and subtract them from your current value you could get a tax deduction for the difference. So let's say you have lost $200,000 in value as with the example above.
You get a check for $150,000 from your insurance company for repairs to the house. You subtract that $150,000 from $200,000 and you could have a $50,000 deduction that you could take. Be sure to check with your CPA.
Q. Do I get a deduction for losses to my personal possessions that are not covered by insurance?
A. The answer to that could be yes, but it depends on what possessions you are talking about. So will they pay you for things that cannot be replaced such as photos, etc.? The answer to that one is no. But if you have property that can be replaced such as TVs, iPads, computers, clothes, furniture, and other personal property destroyed by Sandy that you are not covered for under insurance, then most likely yes, you can claim your losses on your taxes on form 4684.
So I hope this has helped you. In times of loss I know you want answers right away. You want checks cut right away. I advise you to be persistent but also patient. This was a very large storm that touched the lives of tens of thousands of people. So it takes a long time to clean up such a disaster. The adjusters and the insurance companies will have a lot to process so just keep that in mind when dealing with them. Take every day just one at a time and never forget you will get through this and I hope I have made it just a little easier for you.
For more protection information, go to www.suzeorman.com and watch The Suze Orman Show every Saturday night at 9p/12a on CNBC