Legal Blog

Do you have the right homeowners’ insurance coverage?

This column was written by my colleague Bob Freitag, president of AmeriClaims, a public adjusting firm in Indian Trail. One local homeowner thought he had purchased the right homeowners insurance. When a fire struck last year, the insurance company declared his house a total loss and paid his policy limit of $200,000. But it cost him $240,000 to rebuild what was essentially the same house on the same lot. The fire set him back $40,000, even with a “good” policy. I’ve seen this happen more times than you can imagine in my job as a public adjuster. I represent homeowners and associations after a fire, flood, or other disaster to make sure they get what they are entitled to from their insurance company. When I negotiate with insurers on a client’s behalf, the first step is always to review the policy and see what this contract says. This month is an ideal time for you to get to know your policy, and buy a better one if needed so it will do what you intended. Here are pointers to keep in mind.

For all homeowners

▪ Look for the phrase “guaranteed replacement cost” or upgrade your policy to include this provision. Guaranteed replacement policies give you extra coverage if you blow through your limit after a loss. If our homeowner above had a guaranteed replacement policy, his insurance would have covered the entire $240,000 loss. See if your insurance company offers this provision. ▪  Choose replacement cost (RC) insurance, not actual cash value (ACV). RC policies pay current prices to replace your things and rebuild your house. ACV policies pay a depreciated amount. In my opinion, ACV policies are terrible coverage as you will have to pay out of pocket when you have a claim. Let’s say a landlord owns a 10-unit, insured apartment building. But he can’t find a contractor who will work with him to repair the building after a fire. The problem? The landlord had an ACV policy, and it only covers a percentage of the actual cost of the entire repair. I’ve seen similar situations happen to associations and homeowners. Depreciation is deducted based on age and condition of the property, and sometimes can go as high as 90 percent. ▪  One common error is to insure your home or building adequately but neglect the contents inside. Most policies give you 70 percent of the building limit to replace the home’s contents, 20 percent for living expenses and 10 percent for other structures. That might not be enough, and if you or your agent hasn’t determined the real costs of replacing your possessions, you won’t know. Take the time to calculate current prices to replace your most important things, and increase your policy limit if needed. ▪  Go comparison shopping for homeowners insurance every three years. You may be able to get a better policy for less than you’re paying now. Comparison shop with an independent insurance agent rather than one who represents a single company. An independent insurance agent can pull quotes from half a dozen insurance companies to recommend what’s truly best for you. Search “Charlotte independent insurance agent” online to find them.

HOA/Condo Assoc. Members and Boards

▪  Associations need to be prepared for local governments to require building improvements after a disaster. Request code-upgrade coverage in your policy. I’m aware of one condo association which had to install a new sprinkler system in their entire building to meet current standards after a fire. Since they did not have code-upgrade coverage, the condo owners had to shell out $50,000 via a special assessment to pay the bill. ▪  Condo associations have insurance, and condo owners have insurance, too. Do you know what your association is responsible for covering beyond the roof and walls? Review your policy and the association’s governing documents. If you’re still not sure, talk with your insurance agent. You may need to make changes in your unit owner’s policy or your association’s policy for 2016. Most people dread dealing with their insurance policies. But taking these steps will save you money, time and aggravation if disaster strikes. This column was originally published in the Charlotte Observer on March 15, 2016. © All rights reserved.

1 Comment

  1. ann on May 9, 2016 at 1:50 pm

    I appreciate this article! I have tried to find out what questions I need to ask and you have provided exactly what I need.
    I live in a four story building in Raleigh. My neighbors two floors up flushed a toilet which had been running for months (I reported it to the HOA, nothing was done) the toilet had blockage, it ran over for hours and it leaked down to my unit. The HOA filed it under their umbrella claim, but will not assess the originating owner. I think this is a dangerous precedent, (now I can let my toilet run over and get new floor tile??) The HOA received the settlement for all three effected units then hired a contractor to fix things. Much to my vocal concerns, the contractor would not allow me to choose my carpet, now I have to live with an ugly carpet. I knew I was moving into a shared community. I didn’t know I would loose decision making power in my own home. Very poor management and decision making all the way around.