I'm just morbid enough to want to know the answer. And no, the question didn't come out of nowhere. Last year my house was hit by lightening twice. Yep, twice. Thankfully, all we had to do was replace some appliances, but it could have been worse. And I'm the kind of guy who likes to be prepared, so I called up my buddy Todd Curry of the Curry Agency for some answers.
My question to Todd is this, what happens when you are standing in your front lawn watching the fire department attempt to save your burning house? His answer is simple, call your agent. It's your agent's job to be there for you when catastrophe strikes. In that moment your agent will be there to support you emotionally and to iron out the logistics.
If your home is completely destroyed and unlivable, your homeowner's policy has a 'loss of use or additional living expense' policy which allows you to maintain your standard of living while dealing with this loss. Which means if you are used to living in a McMansion, your insurance will cover you renting something comparable in the interim. This policy will also cover laundry service, meals, etc. The key to getting the most out of this policy though is to keep detailed records and receipts of your expenditures.
So that takes care of your immediate needs, but what happens with your mortgage? Let's say you have a home valued at $300,000 with a mortgage of $150,000. This is covered under your dwelling coverage policy. When you first purchased homeowner's insurance your home was valued at a certain amount, this amount is the replacement value of your home. There are a couple of caveats to this policy, but what's important to know is that the bank gets paid first. What's left goes to you. This is what you use to rebuild your home or to buy something new. Some policies even include covering closing costs or an allowance for a monthly stipend to cover an increase in interest rate.
All of this coverage and we still haven't gotten to how you replace all of your stuff. Personal property coverage is what will help you pay for a new couch, kitchen appliances, and shoes. You gotta have shoes. So how does personal property coverage work? It's usually a percentage of your dwelling amount. If your home is valued at $300,000 and you have 50% personal property coverage you'll get $150,000 to replace everything. Your policy may also be broken out into replacement cost or cash value. Replacement cost means if you bought your couch for $1,000 10 years ago you'll still get $1,000 to replace it today. Cash value means you'll only get 100 bucks because that's all your 10 year old couch is worth today. Your best bet for the smoothest possible transition after a disaster is to have a comprehensive inventory of all your belongings. You can hire a company to do this for you or you can do it yourself. Either way, once documented, the information needs to be held in a safe location somewhere other than your own home.
While all this is good information none of it matters if you don't investigate your own policy. Understanding what coverage you have, and what you can expect in the event of the unthinkable, is invaluable. Take this as a nudge to call your agent today. Increasing your coverage to where you feel comfortable may cause you to spend a little more per month, but knowing you'll be taken care of in a tough situation is probably worth it. That's for you and your agent to decide.
I recorded my conversation with Todd for The Pete the Planner Radio Show on WIBC last week, you can check it out here:
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