Tarhill Photos Inc./Corbis
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The Burning Truth
By Karen Hube, July-August 2004
Their house fire was a nasty surprise. Will insurance gaps turn their savings to ashes?
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One night this spring while Jean and Tom O'Shea, 53 and 56,
dined out with friends, a fire ripped through their southern New
Jersey home. Everything in the interior was destroyed, from
treasured photo albums to an antique dinette set. All of their
records—such as birth certificates, insurance records,
wills, car titles, and tax documents—went up in smoke, too.
The couple aren't exactly well-off; they have $6,000 in the
bank and live on Jean's $55,000 salary as a school guidance
counselor, plus Tom's monthly disability income of $2,200 (he
has been on work disability since 1996 due to a fall). Jean has
about $45,000 saved in her school's retirement fund.
The Problem
Their homeowner's insurance policy has a big gap: instead of
offering the standard amount for loss-of-use coverage to pay for
living expenses while rebuilding (20 percent of the replacement
insurance on their house, or $40,000 in their case), it's
limited to $10,000. That won't cut it. Their
costs—$1,000 in monthly rent for a year (and their rebuild
may take even longer) and about $8,000 for added living
expenses—will be at least $20,000.
The Plan
First, the O'Sheas need to put aside for now the thing that
people tend to fret about: replacing lost records. When was the
last time you needed a copy of a tax return? Your birth
certificate? Those can wait. The couple's priority is to meet
with their insurance claims rep to discuss their
policy—ASAP. Getting shafted on loss-of-use coverage is one
of the top problems people face, says Amy Bach, executive
director of United
Policyholders, a consumer advocacy group. The O'Sheas
should ask the claims rep to increase their coverage to the
standard amount. Their argument: policyholders cannot predict
what being displaced from their home will cost, so they trust the
insurer to offer an adequate figure. "It's the
insurer's responsibility to inform people how much
they'll need in a disaster and make sure they have enough
coverage," Bach says. If the rep won't budge, they can
call the state insurance regulator or pay an attorney to threaten
a hearing. The harder they push, the likelier it is that
they'll get an increase.
Another hitch? The O'Sheas never made an inventory of their
possessions. To be reimbursed for things they
lost—furniture, rugs, clothes, television, appliances, and
everything else—they must submit an itemized list to the
insurer. Making a narrated videotape might have cut weeks or
months off their settlement process, says Sue White, manager of
property-loss claims at Liberty Mutual Insurance in Boston. This
doesn't require Fellini; just videotape each item (worth at
least $50) for 10 seconds or longer while naming the brand, model
number or style, purchase date, price, and any info that may
affect value—such as minimal use. Pricier items get more
footage and detail. No camcorder? A list and photographs will do.
The insurer will quote replacement values, but just accepting
these figures can be a costly mistake, Bach warns. If the
O'Sheas think a quote is low, it's wise to argue for
more. Also, they should copy photos of pieces similar to the
antique dinette set they lost and have an assessor give a value,
so they can judge the insurer's offer. Finally, they should
be cautious before cashing any check if they question the amount;
the insurer may claim that it's a final settlement.
Oh, and once they replace all those records? I have three final
words for Tom and Jean: safe-deposit box.
Karen Hube, our new money columnist, has written for The
Wall Street Journal.
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