When Mother Nature Hands You a Catastrophic Insurance Claim
Your house is a wreck, but unless you know how to handle yourself throughout the insurance claims process, the disaster might just be getting started. Here are six common mistakes homeowners make during this critical time.
![A house on the beach is destroyed after a storm.](https://cdn.mos.cms.futurecdn.net/D3HSPjkToPBu9kPjTrQG9o-415-80.jpg)
“These past two years, Mother Nature revealed her fury, resulting in property loses of terrifying, historic amounts,” observes a veteran of some of the most destructive fires in the Western United States, San Francisco attorney Dan Veroff, adding:
“And many insurance companies — trusted to help make families whole again — did the exact opposite, with adjusters massively underpaying valid claims. Sadly, the lack of knowledge by business and homeowners of the claims process —and steps they needed to take before the loss — magnified the harm.”
He outlined “the worst mistakes a claimant can make when facing what we call a CAT – catastrophic – insurance claim.”
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
1. You take whatever the first adjuster tells you as gospel
Consequences: They could misstate your rights under your insurance policy.
Insurance companies bring in an army of CAT “storm chasers” who are almost always from out of state. Rarely do these insurance adjusters have specialized knowledge or training in creating accurate estimates of repair costs, or state law as it applies to your loss.
They often tell claimants that they have less insurance coverage than what their policy provides.
Please, do not act on what they tell you without consulting with an attorney! (More on what kind of attorney in a moment, and to my readers, this is really important!)
2. You accept the first payment as being complete and comprehensive
Consequences: You will be underpaid!
In a typical case, a CAT adjuster comes out with an estimator who is in the insurance company’s pocket. They write up a “quick and dirty estimate,” in their car and cut you a check to cover rebuilding and temporary living expenses.
This is where things get sticky.
Usually, an insured will meet with a contractor who will prepare a bid for repairs, but it can take months for it to arrive and will almost always be much higher than what the adjuster has already paid.
If you had a rebuilding estimate available before the loss, you could have reviewed it with the adjuster. Now you are starting from square one, and your limited payment for temporary housing has run down further. Also, your claim has probably been reassigned to a second or third adjuster, because CAT adjusters are usually only deployed for a short period of time.
You’ve got to learn what the claim is actually worth quickly. Never count on the insurance company to do this, and always expect the initial estimate to be well below what it should be. You have a duty to yourself to question what you are told at the scene by the CAT adjuster and those who follow.
Under extreme pressure and worry, accepting what the adjuster tells you can be a costly mistake.
3. You fail to get an estimate to rebuild your home as it was before a CAT loss
Consequences: You will be at the mercy of an adjuster who will likely under-value the claim.
After disasters, it’s not uncommon for homeowners to want to make some changes to their home’s original design during the rebuilding process. The carrier is obligated to pay the cost of rebuilding your home as it was before the loss and not a different home. Yes, you can rebuild something different, but the rebuilding cost sets your maximum insurance budget. Only getting proof of the home you want to build now – with modifications and improvements and not what you had before – helps the adjuster stick with their low estimate, dispute your figures and thus underpay the claim.
So, you need to answer this question: “What will it cost to replace or rebuild the home we had, not the home we would like to build now?”
If you get this estimate from a contractor in advance — before any potential loss may occur — you will be ahead. You can also use the estimate to ensure you have adequate insurance coverage. After a disaster strikes, it’s important to get a good replacement cost estimate ASAP. At the same time as you get the replacement estimate, have the contractor prepare an estimate for the home you would like to build. As long as the cost comes in within the amount of your insurance coverage, you should be OK.
4. You fail to prepare an inventory of the contents in your home
Consequences: Unless you do this well in advance of a potential loss, you will have to create it from memory, from photos that you might be able to find, receipts, talking with family members. Who can remember all the books, the dresses and suits, the details? Lacking proof, you will not be paid.
Also, assembling this inventory in advance allows you to increase the amount of coverage for personal property so as to not be underinsured. Save the list to the cloud.
5. You hire a lawyer who is not experienced with insurance law
Consequences: Missing key deadlines and losing your rights. Getting involved in litigation for years when it could have taken months. Having the case turn out badly.
Insurance law is unique. If a lawyer tells you, “Oh, I know personal injury, divorce, tax – whatever – therefore I can handle your insurance claim,” RUN! Lawyers inexperienced with property insurance law lose cases because of their lack of knowledge.
So, look for a lawyer who primarily concentrates on property insurance work.
6. You exaggerate your loss or outright lie
Consequences: In some states, if the company can prove you have lied, they can deny the entire claim. Lie about a dollar and you lose the whole thing!
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
After attending Loyola University School of Law, H. Dennis Beaver joined California's Kern County District Attorney's Office, where he established a Consumer Fraud section. He is in the general practice of law and writes a syndicated newspaper column, "You and the Law." Through his column he offers readers in need of down-to-earth advice his help free of charge. "I know it sounds corny, but I just love to be able to use my education and experience to help, simply to help. When a reader contacts me, it is a gift."
-
Visa Is the Worst Dow Stock Wednesday. Here's Why
Visa stock is down sharply Wednesday after the credit card company came up short of revenue expectations for its fiscal Q3.
By Joey Solitro Published
-
Another Analyst Moves to the Sidelines on Tesla Stock After Earnings
Tesla stock is spiraling Wednesday after the EV maker's big earnings miss and Wall Street has been quick to weigh in. Here's what you need to know.
By Joey Solitro Published
-
Confused by Annuities? Making Sense of the Different Types
Many investors aren't sure if annuities are a good option for meeting financial goals. Let's look at the different categories, along with their pros and cons.
By Kris Maksimovich, AIF®, CRPC®, CPFA®, CRC® Published
-
Talkin' 'Bout My Generational Wealth: Baby Boomers
With retirement, each generation has different priorities and challenges. For Baby Boomers, it's a matter of ready or not, here it comes.
By Alvina Lo Published
-
How to Avoid a Big Hassle if Your Financed Car Gets Wrecked
How an insurance check is made out for repairs can cause a world of problems if the lienholder is left out.
By H. Dennis Beaver, Esq. Published
-
Estate Planning Strategies to Consider as Election Nears
Are big changes in tax laws coming soon? Not likely, but you might want to take advantage of higher estate and gift tax exemptions well before the end of 2025.
By David Handler, J.D. Published
-
How to Get Your Money's Worth From Your Financial Adviser
A good financial adviser will focus on how your financial planning and investment strategy align with your lifestyle and aspirations.
By Pam Krueger Published
-
Think of Prenups and Postnups as Financial Planning Tools
These contracts provide a clear framework for asset management and protection and are especially useful if you get married later in life.
By Andrew Hatherley, CDFA®, CRPC® Published
-
Congratulations on Your Raise: Three Things to Do With It
We're not saying you shouldn't spend it on a new car, but there are some considerations to guard against lifestyle creep and to help ensure a comfy retirement.
By Andrew Rosen, CFP®, CEP Published
-
Check Off These Four Financial Tasks to Finish 2024 Strong
The new year is a popular time to set financial goals, but now is the ideal time to check how you're doing. Four tweaks could make a big difference.
By Daniel Razvi, Esquire Published