Financial Recovery and Risk Management
Brenda Procter, M.S., Consumer and Family Economics, College of Human Environmental Sciences, University of Missouri-Columbia
As you attempt to restore your life and home after a
storm, you will face many decisions. In many cases, the
decisions will involve large investments. Naturally,
you’ll want to recover as much as possible through your
homeowner’s insurance policy. Where insurance falls
short of your needs, other types of assistance may be
available, especially where the president has declared a
disaster area. Uncovered claims are tax-deductible if
they exceed 10% of your adjusted gross income. Part of
your financial recovery involves making good business
decisions when contracting for repairs.
Documenting Losses and Claims
Whether you’re filing for insurance, seeking
assistance or claiming a casualty tax deduction, you
will need proof of your losses. Before you start
cleanup, take pictures. If you can’t take pictures,
describe the situation accurately, listing the specific
items that have been lost or damaged. Keep damaged
materials for proof of loss until your insurance
adjuster authorizes their disposal. It’s okay to remove
the damaged articles from their original location to
prevent further damage to the building, but do not throw
them away without insurance company approval.
Remember to document the losses in your landscape and
garden. Also, document the amount of debris you will
have to remove, and whether it came from your property
or elsewhere. Some homeowner's insurance policies cover
debris removal.
- Save all receipts for your temporary lodging and
food if your home is not fit to live in. Some policies
pay the difference between normal living expenses and
the cost of living elsewhere.
- Save receipts for temporary repairs you made to
protect your property from further damage.
- Save receipts for any materials you bought and for
other items you needed to protect your building or its
contents from further damage. You may be able to claim
these on your homeowner's insurance policy.
- Keep a copy of all letters and receipts that you
send to insurance companies or relief agencies.
- Keep a record of all phone calls you made to get
reimbursements or aid.
Filing for Insurance
These tips are offered to guide you in filing
insurance claims for damage to your home and loss of
personal property:
- Call your insurance adjuster immediately, and
provide a phone number where you can be reached. If
phone service is not available, work through disaster
assistance workers from the Federal Emergency
Management Agency (FEMA) or the Red Cross for
assistance in reaching your insurance adjuster.
- If possible, wait for an adjuster to survey
damage. Meanwhile, carefully document losses and begin
cleanup and salvage to prevent further damage to your
home. Keep damaged materials in an isolated spot as
far from the building as possible.
- Follow up on your insurance call with a letter
detailing your problems. Keep a copy of the letter.
- Leave phone numbers where you can be reached when
the adjuster arrives.
- Ask the adjuster to assess damages. Sign the proof
of loss statement. Report additional damage as it is
found.
- Provide any other information the adjuster
requests.
Be sure to file your insurance claim within the
policy's imposed time limits. For homeowner’s policies,
it varies. Review the settlement steps outlined in your
policy. If you’re dissatisfied with the proposed
settlement offer, explain your position in writing.
The Missouri Department of Insurance (MDI) can help
if you feel you’re being unfairly treated by your
insurer–for example, if the company didn't contact you
within 48 hours after the claim was reported, or if the
company refuses coverage that is specified in your
policy.
For more information about MDI, call 1-800-726-7390
or check the agency Web site at
http://insurance.mo.gov/consumer/info/
Homeowner’s Insurance
Many people are surprised about the extent of
protection a homeowner’s insurance policy offers.
Although your homeowner’s policy does not cover damage
caused by rising floodwaters, it does offer some
protection from loss caused by wind, rain, hail, snow,
lightning and freezing temperatures. If you have
experienced a loss or damage to property, review your
policy’s provisions and contact your insurance agent to
file a claim and/or to update your policy to include
coverage you need for the future.
Be sure your coverage amount is always at least 80%
of the current replacement cost of your home. Otherwise,
you will not be paid the full cost of replacing a
partial loss. Also, many homeowner’s policies pay for
losses to your contents (furniture, appliances, clothes,
etc.) on an actual cash value basis (replacement cost
minus depreciation for age or wear and tear). A better
option is to buy replacement cost coverage that pays the
full cost to replace your personal property at today’s
prices. Although the premium costs are a little higher,
the extra protection is usually worth it.
For more information on homeowner’s insurance, see
http://missourifamilies.org/features/financearticles/homeins.htm
Tips
These items are usually covered but may vary
according to the policy's provisions and up to the
dollar amounts that you purchased:
- Your house, including rental units that are part
of the building, and any attachments to the building
such as a garage.
- Any structures on your grounds that are not
attached to your house such as a garage, tool shed,
pool cabana, gazebo or fences.
- Cemetery plots or burial vaults that you own.
- Vacant land that you own or rent, with the
exception of farmland.
- Personal possessions that you or members of your
household own or use anywhere in the world. This
includes the contents of your house and any structures
on your grounds. It also covers any possessions that
guests bring to your house, but it does not include
the possessions of any tenants you may have living in
your home.
- Any items that friends have lent to you that
you're keeping on your property.
- Your living expenses, if your house is not fit to
live in because of damage.
- Rental payments, if you normally rent part of your
house but no longer can because of damage.
Many policyholders may be unaware of the extent of
the protection offered by their homeowner’s insurance.
If you have experienced a loss or damage to property,
review your policy’s provisions and contact your
insurance agent to file a claim and/or to update your
policy to include the coverage needed for the future.
A standard homeowner’s policy does not cover your
cars, most recreational vehicles, watercraft, animals,
birds or fish. While homeowner’s insurance does not
cover losses from rising water, it usually does cover
water damage from such things as leaking roofs, broken
windows and broken pipes. Most policies do not cover
sewer backup unless you purchase a sewer backup
endorsement.
You should know, if you are in a designated special
flood hazard area and your structure is substantially
damaged by any force (wind, water, fire), you may be
required by the local permit office to meet the flood
damage prevention requirements for new construction; for
residential structures this means elevation. A structure
is substantially damaged when the cost of restoring the
structure to its pre-damage condition is 50% or more of
its pre-damage market value. Owners of structures in
special flood hazard areas can partially insure
themselves for the added expense of elevating a wind or
fire-damaged structure before repairs by purchasing a
“Code Compliance” endorsement on their homeowner’s
policy.
Flood Insurance
Losses caused by rising floodwater are not covered
under most homeowner’s insurance policies. If you have
purchased coverage through the National Flood Insurance
Program at least 30 days before being affected by a
flood, you will be protected against property damage
caused by such flooding. You may also be partially
reimbursed for steps you take to prevent flood damage,
even if the flood never reaches your building.
Flood insurance policies written or renewed on or
after June 1, 1997, include an endorsement called
Increased Cost of Compliance (ICC). This coverage will
pay up to $15,000 for elevating or relocating an insured
dwelling so that it is above the flood protection
elevation required for new construction. For
nonresidential structures, flood-proofing by other
methods may also be covered. The coverage may be used
toward the cost of demolishing the floodprone structure
and building a new structure at the required elevation.
ICC coverage is available only for structures that
have been substantially damaged by a current flood event
for which a damage claim is being filed. In communities
with cumulative substantial damage ordinances, the
eligibility requirements for this coverage are less
stringent.
The flood insurance adjuster may submit a damage
assessment form to the flood insurance program
indicating that substantial damage is suspected;
however, final responsibility for determining whether a
structure has been substantially damaged rests with the
community. In most Missouri communities, the
determination will be made by or through the floodplain
administrator, who is usually the building or permit
official.
Credit and Other Sources of Relief
Victims of natural hazards whose losses exceed their
insurance coverages may obtain loans or other financial
assistance.
The Red Cross helps with immediate building repairs
and living expenses when no other immediate assistance
is available.
Merchants and dealers may extend credit for feed,
equipment and rehabilitation of buildings and land.
The Small Business Administration (SBA) offers medium
and long-term loans for rehabilitation of non-farm homes
and small businesses if overall damage in the community
meets certain criteria. Borrowers may obtain 20% over
the damage repair loan amount for mitigation (to protect
the property from future damage by natural hazards).
Commercial and federal land banks offer loans with
moderately low interest rates for home repairs,
improvements, land equipment and livestock.
Insurance companies offer long-term loans at
relatively high interest rates for home repair,
improvements, land, equipment and livestock.
Uninsured losses, and the uninsured portion of
losses, should be reported as an additional itemized
deduction on federal income tax form Schedule A under
casualty losses. To be deductible, losses must exceed
10% of adjusted gross income. See
missourifamilies.org/features/copingarticle/coping8.htm.
Federal Disaster Assistance
If an event is declared as a major disaster by the
president, numerous additional sources of federal
assistance will become available. The Federal Emergency
Management Agency will set up a disaster registration
hot-line and will usually work with the State Emergency
Management Agency to establish local disaster recovery
centers. The hotline and recovery centers will be
sources of access to the various federal assistance
programs.
In addition to the SBA loans already mentioned, these
types of assistance are usually available:
- Individual and family grants, for those who do not
qualify for a loan
- Temporary housing assistance
- Unemployment assistance
- Assistance with recovery planning; mitigation
advice
- Legal services to low-income families and
individuals
- Crisis counseling for disaster-related mental
health problems
- Special income tax advice and treatment
Housing rehabilitation assistance for low and
moderate-income households may also be available in some
communities through the U.S. Department of Housing and
Urban Development programs administered by local and
state agencies.
Recipients of federal assistance for flood damage
will be required to purchase and maintain flood
insurance on their property. Owners of that property may
not receive federal assistance in future floods unless
the property is protected by flood insurance during
those future floods.
Contracting for Repairs and
Rebuilding
Selecting a Contractor
As you attempt to restore your life and home after a
storm, there may be only a few local companies and
individuals to perform the necessary services. It often
may be advisable to do temporary repairs and wait for
local contractors who will be there to guarantee their
work long after the storm is over. If it is necessary to
complete the repairs, however, it is important to
receive good quality work, or major deterioration may
appear later.
Outside contractors and companies will enter the area
to offer their services. Some are honest and will do an
adequate job, but be careful in working with outside
contractors.
If possible, check with the Better Business Bureau,
either in Missouri or in the state and city where the
company or person is located. It also is advisable to
check with others for whom they have worked in Missouri.
Determine if they have performed in a timely and
adequate manner.
Ask for proof of insurance. The contractor must have
disability and workers’ compensation insurance, or you
may be liable for accidents occurring on your property.
Do not pay in advance. Do not let the contractor
begin work until you have a signed contract. When the
job is complete to your satisfaction, pay by check or
credit card, not cash.
Before making final payment, ask for proof from the
contractor that all suppliers have been paid. Otherwise,
unpaid suppliers can legally put a lien on your property
for settlement of bills if the property is sold.
If you cannot find a contractor willing to accept
these basic terms, strengthen the patches and wait
patiently until you can be sure of a good job. Even
under critical emergency conditions, complete, high
quality repairs must be done, or damage and
deterioration will appear later.
Contract Essentials
The offer and acceptance (agreement) to do specific
things in a specific manner. State clearly, simply and
completely all that is to be done. If beginning and
finishing dates are involved, state them in the body of
the contract. A good item to include in a contract for
home rebuilding is that materials and procedures used
will be those provided for in minimum standards of the
current building code.
Guarantees. Include what is guaranteed and for
how long. Also include who is responsible for the
guarantee (contractor, dealer or manufacturer).
Permits. State who is responsible for
obtaining and paying for any required building permits.
Parties. Parties involved must be at least 18
years of age and mentally competent (not insane,
retarded or suffering mental problems of aging). All
parties must sign the contract.
For a consideration. Something of value
changes hands, usually money. The amount to be paid and
schedule of payments should be included in the contract.
That schedule should be based on progress toward
completion, not on the passage of time. Exercise your
right to inspect all work or to hire someone to inspect
the work for you.
Change Orders. The contract should specify
procedures to be used to change the original work order.
Keep a copy of the signed contract.
Withhold full payment until:
- The building contractor or person hired has paid
for all building supplies used. Require receipts for
all paid bills for all materials used.
- Everything has been completed on the job to the
full satisfaction of the contract and to the
satisfaction of you or your inspector.
- The contractor has provided you with releases of
lien from himself/herself, from suppliers and from
labor subcontractors.
Buyer Beware!
Is the contractor offering you a special deal? Using
your home as a model for his work? Shy away.
Is the offer too good to be true? Be sure the quality
is there before you agree to buy.
Does the contractor want cash only? Find another
contractor.
Did the contractor solicit your business, rather than
your calling him? Were you pressured to sign a contract?
Federal law gives you 3 days to cancel such a contract
after you sign it. Send your notice of cancellation by
registered mail.
Do you think you’ve been had? Have you tried to
resolve your problem with the contractor, but been
unsuccessful? Don’t be embarrassed to call the Consumer
Protection Section of the Attorney General’s Office at
225/342-9638 or the 24-hour Consumer Info-line
1/800/351-4889.
For more information, contact your local Cooperative
Extension Service office listed under local government
in the telephone directory.
Adapted from Financial Recovery and
Risk Management, Louisiana State University
Reviewed by Calvin Call, Executive Director of the Missouri Insurance Coalition
Last update: Monday, February 05, 2007
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