Suze Orman, Financial Guru
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Home Ownership

What you need to know about your insurance policy!

If you’ve been affected by the California fires—or even if you haven’t—read the helpful Q&As below! This is very important information about how your insurance policy works.
 

Q: I know that my home has been damaged or destroyed/I have been evacuated but have no information regarding the condition of my home.

A: 1. Every policyholder should have/secure a copy of his or her policy Declarations and actual Policy. Declarations Page includes important information including the policy number, the policy or coverage period, the insured location, policy limits, and telephone numbers for the insurance agent and/or company. Your insurance company will follow the specific coverage stated in your policy in processing your claim.
If you do not have a copy of these documents, contact your insurance agent or company and request a copy.

2. If you have been evacuated, your homeowner policy likely provides some coverage for food, lodging and other expenses related to your evacuation. The coverage is typically for a limited period, such as two weeks or a month. Refer to your policy for the actual level of coverage. You can make a claim for evacuation expenses immediately; you do not have to wait to make this part of a claim for actual damages to your house.


Q: I have received confirmation that my home has been damaged/destroyed. How do I proceed?

A: 1.You should contact your insurance company immediately to start the process of making a claim.

2. Most likely your initial call to your insurer will be handled by a customer service representative who will gather your basic information. This is a good time to request a copy of your policy, in the event you do not have one accessible.

3. Make sure that the customer service representative gives you a claim/reference number before you hang up. This is crucial information for you to be able to keep track of your claim.

4.If you haven’t received a telephone call from the company adjuster within 48 hours, it is important that you call your insurance company and let the customer service representative know. If you feel you aren’t receiving acceptable answers from your assigned adjuster, ask to speak to a claims supervisor.


Q: I am not familiar with insurance terminology. What are coverage amounts?

A: You may see the following terms on your Declaration Page:

Coverage A/Building Limit/Dwelling Limit: The dollar amount associated with this coverage is typically for the dwelling (the house), including attached structures. Wall to wall carpeting is an example of an item typically covered under this coverage.

Coverage B/Other Structures/Appurtentent Structures: These are structures on your property usually separated from the dwelling. Fences, gazebos, and swimming pools are examples of other structures.

Coverage C/Contents/Personal Property: Your personal items such as clothing and furniture are included under this coverage.

Coverage D: Loss of Use/Additional Living Expenses: If a covered loss makes your home unfit to live, your insurance policy may cover necessary increases in living expenses incurred so that your household can maintain its normal standard of living. This coverage typically applies to the shortest time necessary to either repair or replace your home or permanently relocate. This coverage may have a dollar and/or time limit. If there is a dollar limit, it is generally 20% to 50% of your dwelling limit—so if your home is insured for $300,000—you will have $60,000 to $150,000 for additional living expense coverage. Some policies will include a maximum time limit for the coverage; typically it is 12 months, though in some instances it can be as long as 24 months.

Extended Replacement Cost: In the event the cost to repair your home exceeds the stated dollar limit of coverage on your policy, Extended Replacement Coverage effectively increases your coverage beyond 100% of the stated policy limit. For example, you may be entitled to payments for as much as 125% or so of the stated policy limit.

Consider this example:

For this example, Coverage A is $300,000. The policy includes 125% Extended Replacement Cost. Should the cost of repairs exceed the Coverage A amount of $300,000, the policy may pay an additional amount as follows:

300,000 x 125%= 375,000

In this scenario, the maximum amount available for repair or replacement of your home is $375,000.

Typically, Coverage B, C, and D are a percentage of Coverage A. If Coverage A increases (because the insurer has applied the extended replacement cost provision of the policy - i.e. the bid from the contractor to rebuild is MORE than the amount listed on the policy for Dwelling/Coverage A), the other coverages will also increase by specific percentages.

Don’t forget to ask about other coverage that may be included in your policy such as debris removal, building code upgrade, and landscaping.
 

Here are some other key points to remember:

1. My house burned down. Do I still have to make mortgage payments? Yes. You are still obligated to make your mortgage payments. You should, however, contact your mortgage company and make them aware of the situation. Your mortgage company may be able to make special arrangements because of this situation.When your insurance company issues payment for your dwelling, the payment will be made payable to you and your mortgage company. Your homeowner policy includes language that requires your mortgage company to be named on payments related to the house or dwelling. Typically, your insurance will issue a two party check, to you and your mortgagee. Mortgage companies handle the distribution of funds differently. Check with your mortgage company.

2. My finance or leased vehicles was destroyed by fire. Do I still have to make my payments? Yes. You are obligated to make your payments until you settle your claim. With regard to financed vehicles, your insurance company will issue payment to your lender for the amount that you owe. Any proceeds will be paid to you.

3. I cannot live in my house. Will my insurance company pay whatever I need to live?No. Your homeowner policy language describes this coverage in detail. There is likely both a dollar and time limit associated with this coverage.

4. Will my insurance cover me for whatever it costs to rebuild my home? No. Your standard policy will cover the cost to rebuild your home to the state it was in at the time of your loss. And your coverage is limited to the amount stated under Coverage A of your policy. If you also have Extended Replacement Cost, the dollar limit stated for Coverage A may be increased. Most standard policies will not cover costs associated with rebuilding/repairing that is required to meet current building codes. Check if your policy provides extra coverage for code upgrades.

5. If I do not want to rebuild, will the insurance company give me a check for the dwelling amount? Maybe. Refer to your policy in this regard. Some carriers will only pay Actual Cash Value if you do not rebuild. Other carriers will pay the Coverage A amount if you choose not to rebuild. Also, in regards to rebuilding at another location, if you choose to rebuild elsewhere, some insurers will pay up to the dwelling limit listed on the policy, but never the dwelling limit PLUS the extended replacement cost provision. Other insurers will again just pay Actual Cash Value because you chose not to rebuild on the same parcel of land.

6. What happens to payment for extensive landscaping/mature trees? Most policies have a separate coverage for landscaping. The coverage usually is limited and includes a per tree/shrub sub limit. For example, some insurers offer a maximum of $2,500 to $5,000 for ALL trees/shrubs, but place a max of $500 per tree or shrub.
 

Tips for Working with a Contractor

1. Check with the contractor’s licensing board before hiring any contractor (www.cslb.ca.gov)—make sure their license is valid.

2. Get their bid in writing—including labor, timeline, warranty, site cleanup and trash disposal, and mediation and arbitration clauses in the event of a dispute.

3. Check the Better Business Bureau website (www.bbb.com) for any complaints filed against the contractor.

4. Be sure your contractor has liability and workers compensation insurance. Being on the hook for property damage or personal injury claims, while work is underway is a frightening thought.

5. Ask if subcontractors are insured—sometimes contractors will hire an electrician, for instance, to work on a home. Just as with the contractor, all sub contractors need to be insured.
 

If you have more questions about how to protect yourself, I recommend contacting Ramona Johanneson, Personal Insurance Broker, via e-mail at rjohanneson@fp-ins.com or by calling 916-688-7741. Ramona was an expert consultant for the Insurance Kit and handles my own personal insurance.

    –Suze

Fannie Mae
800-732-6643
http://fanniemae.com 

Smart Money Real Estate
www.smartmoney.com/home

www.HomePriceCheck.com

www.DataQuick.com

(This one will cost you a few dollars, but they are good.)

American Land Title Association
1828 L Street, NW, Suite 
705 Washington, DC 20036

(800) 787-ALTA

www.alta.org

National Center for Home Equity Conversion
360 N. Robert #403
St. Paul, MN 55101

Tel: 651-222-6775

Fax: 651-222-6797

www.reversemortgage.org 

 

Fannie Mae
3900 Wisconsin Avenue
NW Washington, DC 20016-2899

(800) 732-6643

http://fanniemae.com

"Facts for Consumers: Reverse Mortgages" (an FTC publication) 

 

Federal Trade Commission Public Reference Branch
Sixth Street and Pennsylvania Avenue
NW Washington, DC 20580

(202) 326-2222

 

Financial Freedom Senior Funding Corporation
19782 MacArthur Blvd., Suite 100
Irvine, CA 92612

(800) 500-5150

This financial services firm has its own proprietary reverse mortgage products, the Financial Freedom Equity Guard and the Cash Account. For information, call the number above. 

 

HUD (U.S. Dept. of Housing and Urban Development)
451 7th Street, SW 
Washington, DC 20410

(888) 466-3487 (for consumers)

(202) 708-2700 (Development Division, for lenders)

www.hud.gov

Operates the federal Home Equity Conversion Mortgage (HECM) reverse mortgage program. Site has information about HECMs. The site also allows users to find out about approved FHA lenders that offer HECMs and the names of approved counseling agencies. Printed information can be received by calling the toll-free number above. In addition, the HUD Counseling Clearinghouse website offers information about HUD-approved housing counseling agencies and a list of agencies nationwide. The site also has the current FHA loan limits for the entire United States.

For general information on the Department of Housing and Urban Development 
www.hud.gov

To find out about local home buying programs in your area
www.hud.gov/buying/index.cfm

To find your local FHA office
www.hud.gov/local/index.cfm 

Department of Veteran Affairs
800-827-1000
www.homeloans.va.gov

Eloan Calculator
www.eloan.com 

Kiplinger Home calculator
www.kiplinger.com/tools/index.html 

CNN and Money Magazine Home Calculator
http://cgi.money.cnn.com/tools

Smart Money Buying A Home Calculator
www.smartmoney.com/home/buying/index.cfm?story=howmuch 

Smart Money Mortgage Calculator
www.smartmoney.com/home/buying/index.cfm?story=mortgage 

Smart Money Rent or Buy calculator
www.smartmoney.com/home/buying/index.cfm?story=rentown 

Mortgage professor Calculator
www.mtgprofessor.com

BUT NOT THIS WAY

As you all know, I'm a big proponent of paying off your mortgage as soon as possible. But please steer clear of a new bank-sponsored gimmick called an "equity enhancement program" that claims to help you do this. The pitch, when you get it, will probably come as a letter from your bank promising to help you reduce the cost of your mortgage with no refinancing. But it will end up costing you money if you sign up. Here's why. 

The program works by requiring you to make two smaller mortgage payments, one every two weeks, in place of the single larger monthly payment you're making now. The bank will deduct the payments directly from your checking account. Fair enough, but let's see how it plays out. Let's say your current monthly payment is $2,241.91 on a mortgage that's a 7.625-percent fixed 15-year loan totaling $240,000. Let's say you have 14 years and 7 months to go on the loan before it's paid off. If you stick with your current plan, you'll pay total interest of $166,534.09. The new program says that by simply taking money out of your bank account every two weeks instead of every month, and paying $1,123.46 each time instead of $2,241.91, the total interest you'll pay will be reduced to $147,047.89. You will have satisfied your mortgage in 12 years and 9 months, and will have saved $19,486.40 in interest. 

But here's the rub, in smaller print: There is one-time lifetime program fee. In the case of Wells Fargo's program, it's $295. And there are monthly participation fees that eat up another $5.42 a month. Over 12 years and 9 months, those fees add up to $1,124.42, money that you could be earning interest on. And you can accomplish exactly the same thing by making one extra mortgage payment a year on your own. There are two good ways to do that: You can add one twelfth of that extra annual payment to your mortgage check each month. Or you can simply write a check for one extra payment at the beginning of each year and get it over with. There's no charge for that. So though I'm an advocate of paying off mortgages early, I am not an advocate of these offers you're getting in the mail. Don't be suckered in.

People First. Then Money. Then Things.
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