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Four rules for fire and property insurance

12 September 2009 No Comment

By Helen Kaiao Chang

See original story on SDNN

Wednesday, September 2, 2009

Tim Karen, a San Diego lawyer, shares a nightmare story about one client whose house burned down.

The house caught fire when a fan with defective wiring burst into flames. A few hours later, the house was gone.

Fortunately, the homeowners had insurance to cover the damage. Unfortunately, it wasn’t enough.

The insurance replaced the house itself for $800,000. But it only covered about $200,000 of the $400,000 worth of personal property contained inside.

Now the homeowner is suing the fan manufacturer for the difference of $200,000 in personal property, while the insurance company is suing the maker for the full claim amount of $800,000.

“Have adequate rebuilding cost insurance coverage and personal property replacement coverage,” said Karen. “And adequately document what you have.”

Here are four rules for fire and property insurance:

1. Get enough insurance. You want enough to cover the cost of rebuilding your house. This is not always the same as the market value. In some case, the reconstruction costs may be higher.

This is because the cost of building supplies has risen in the last decade, as third-world demand grows for raw materials, such as wood, steel and concrete. At the same time, market value has dropped for most San Diego houses.

The difference is even greater if a homeowner bought their house decades ago, when the cost of building was a fraction of what it is today.

Most people would rather pay the least amount of insurance possible. But they risk not having enough if disaster strikes.

“When we buy insurance, we usually just get what’s required by law, and we’re looking at the amount we paid for the house as a reference point,” said Karen. “The problem with that is it may not reflect where you’re at when the house is destroyed 10 or 20 years later. You may not be able to rebuild it for what you thought it was worth when you bought it.”

2. Review your insurance. Check your house insurance annually. A good time is when you pay your taxes or receive the annual tax assessment.

Talk to your insurance agent to find out the market value of your home, as well as the cost of replacement, said Karen. Insurance companies generally track both these numbers.

3. Document the contents of your house. Karen recommends using a video camera while walking through the house to record all your valuables. Any photos, receipts and other paperwork will also help create records of your belongings.

“If you have a loss of hundreds of thousands of dollars of property and you know what it is, you can see it in your mind, but you don’t have the ability to document it, that’s a major problem,” said Karen.

The insurance company will recognize there is property loss, and compensate you. But whether it pays you $100,000 or $200,000, depends on how well you document it, said Karen.

4. Store your important documents outside the house. Once you have made a record of your belongings, put it somewhere other than you house. Store it at a relative’s house or the office.

That way, if the worst happens, your documents don’t go up in smoke or flood.

“If your house has burned to the ground, that little shoebox of receipts you have or the box you bought at Costco” that you left in your house, said Karen, “that probably got burned up too.”

Follow Helen on Twitter @HelenChang.

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