What Really Happens When You Have a Home Insurance Claim

I have had some experience with this, more than average. Not really through bad luck while some bad luck but some as a condo president and through some of honey’s customers. Even with out an impending disaster looming in your life this is worth a read. Plus during hurricane and fire season it might be just in time. You’ll find information about how it all works, what to buy and set your mind at ease generally when the moment arises. I know there are a lot of things that go through your mind like the deductible but the reality of the situation can be a little different. With so many going through it now in the wake of hurricanes in the US and a busy fire season in Canada it might be timely.

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Neighbour’s house fire

Sometimes we hear horror stories but those aren’t always warranted, then again sometimes they are for example boat insurance and good luck insuring your dock these days. But here’s how it’ll go down for home insurance claims if disaster strikes and what you need to know and do if it does. Also I’ll let you know how it most often goes off the rails if it does.

Mitigating loss is your responsibility

To a reasonable extent. That means you should turn off the water in a flood, move the car if you can in a fire, tie your boat up if it breaks free or throw a soaping wet rug onto the lawn. If you can… I put this first since it’s the first thing you should think about in a disaster. It’s also the number one reason people wind up in trouble and a fight with the company after a loss. That being said don’t freak out. Don’t freak out because this is what you are going to do instinctively in a disaster anyway and more often then not honest people take this further than they should. This doesn’t mean you should run back into the house to get the car keys if it’s on fire but if your holding them already you should move it. This isn’t really an example of what gets people in trouble though, you’ll have to read on for that. If you’re too frazzled to move the car or don’t know how to shut off your water instantly the insurance company will probably accept that. But you should take reasonable measures to prevent further damage. This includes things like calling your building manager, closing or opening a door to prevent further water damage or calling 911. These are all things your going to do without even thinking about it as long as you can. And that is all the company is asking for.

This is also the number one reason people end up sued by their insurance companies so it is important. But it’s not because you were busy with firefighters and the car caught fire. It more so overlaps with negligence. This happens in cases like one I’m aware of when a frozen pipe was not tended to and the house essentially had to be gutted. Basically the homeowner was out of the house (either on vacation or living elsewhere) and they let the oil tank run dry in the dead of winter. No one was taking care of the house and the temperature went below zero the pipes all burst (at least 8) and they flooded the house. The leaks froze and eventually thawed (we get lots of freeze thaw cycles in winter) and the house moulded. Essentially the whole thing was gutted and the insurance company and the homeowner ended up suing each other. The company sued the homeowner for failure to mitigate loss a $20 000 problem ended up being well over $100 000 and the homeowner alleged the home was not fixed properly (which it wasn’t).

This homeowner should have had someone looking in every 48 hours and didn’t. Other things that might get you in trouble are leaving your boat at a dock instead of an available mooring in a forecasted storm, ignoring an issue that you were informed about or not calling firefighters in a timely manner.

Deductible

Ok, I’m putting this at the top even though it should be last for two reasons one its short and two it’s the first thing everyone thinks about. When my condo flooded and our neighbour’s house caught fire the first thing we both thought was, “crap I don’t have $1000!!!!!” Take a breath, you don’t actually pay your deductible at all it just comes off of a final cheque for your content replacements, car, living expenses or something else. Maybe if everything is going to your contractor you have to give him some money at the end. But be up front with your adjuster he’ll let you know what you can do. Perhaps not replacing a few things and taking an actual value cheque instead (and deducting from that). It is not the case that if you don’t have the money nothing can start. Keep breathing.

What if you caused the loss (by being an idiot)

Chances are your covered. I’ve heard of a few cases like this some of them sort of funny. One man started the washer and let it fill up to soak the clothes and forgot about it and went out to fix  his lawnmower. How wife finished the load and dried it. He thew all of his gas and oil soaked rags into the washer presuming it was full of water. He lit a cigarette and eventually thew it into the washer causing the rags to catch fire and it burned most of the house. He was covered. Making drunk fries and start a grease fire, covered. Leave a window opened in winter and a pipe bursts, covered. Start a fire by standing too close to a curtain with a cigarette, covered. You can have coverage denied if the loss occurred during the commission of a crime, like arson, narcotics manufacturing or lets’ say murdering.

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Bottom condo after a burst pipe in the ATTIC

What is an adjuster

Mostly your buddy, but not really. Officially they are a third party between you and the insurance company who settles disputes about what is covered and what repairs are sufficient He’s your buddy because he’s your go to and there for fairness. However, you didn’t hire him the insurance company did. Treat him as you would a school principal they are ultimately there to protect you but also the enforcer of the rules. Be friendly, polite but professional. I learned this from my first experience with a flood and my guy was great. I bought a very expensive, famous lamp to replace two very cheap ones. I was prepared to cover the difference but since the contractor gave me a little grief (not a lot in hindsight) and I opted to take current value on a few things rather than replacing them he overlooked it. Remember though even though he legally doesn’t have a stake in it his next pay check has nothing to do with you.

Restoration and loss mitigation contractors

Once you file a claim with your insurance company (call right away there is a 24 hour line) the first people to show up will be loss mitigation workers. Their job is to prevent the damage from getting worse right away. So they might pull up flooring and wet drywall to prevent mould, install dehumidifiers and blowers or fix a hole in a burned through roof. That also might take your stuff away to clean it or prevent further damage. They might not handle the repairs so say thank them now. They are the ones that will calm you down first so they deserve it! It’s best not to interfere with their work or try to direct it as they know best and preventing them from working could be viewed as a failure to reasonably mitigate loss.

The crew that does the repairs is from the restoration company and might be the same or different than the mitigation crew. Even though they are hired and paid by the insurance company in the case of a non-total loss they work for you as the homeowner. Now they are your best friends in the process. To some extent they don’t really care what they are doing and they know that they are getting paid. So you can and up a whole lot happier with your home than you started when you started. If you decide to change something you’ve always hated they can do that for you. For example when my condo flooded I was just about ready to re-do my bathroom. My giant toilet wasn’t damaged and the vanity was removed to prevent it from being damaged and so that a new floor could be installed. Even though the insurance company said my existing toilet and vanity were fine to go back in they were happy to put in new ones as long as they were there when they were ready. We ended up installing the tiles that were in the living room (during a snow storm) but they would have done it too for a nominal fee, just the overage above the covered laminate.

Building code vs restoration

At least in our area this is a weird legal loophole that sucks. If we do work for you we have to do it to code and pull a permit. Neither of these things are true if you are restoring due to a non-total loss. Ask your restoration contractor to tell you about this up front and consider on a case by case basis if you are willing to pay extra to bring your home to code. Also since there isn’t a permit there won’t be inspections from the building office. I don’t really think this is fair or right but it’s a thing. No other contractor is allowed to ignore the building code or work without permits. In my case I opted not to install drill plates on pipes since they were at knee level and no one was like to hang art there. But many issues that arise in the course of repairs should be taken care of.

Loss vs total loss

Most of the time an insured loss will not be a total loss. A flood, sewer backup or small fire usually doesn’t mean the structure is done. In this case legally the homeowner is in charge of the site. That means you make the decisions, retain ownership of the property and have the final say. As such you should treat the work as if it is a planned renovation. You should oversee the work, check in frequently and take it seriously, they have to make you happy. It’s just you and the insurance company handling in the mix. They pay the bills and you make the decisions. That means you decide who is hired but they are happy to make suggestions and handle it for you if you want.

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Welcome home! My front door after a burst garden hose pipe

In the case of a total loss this gets muddied. In practice it seems that it works the same way but that’s not exactly the case. As long as no changes are made and everything goes smoothly there shouldn’t be any hiccups. But… if the structure is deemed a total loss the first cheque is cut from the insurance company to the bank to pay off the mortgage. Then technically the insurance company is in control of the site and not the homeowner. The money that rebuilds the house is paid by the insurance company and re-instates the mortgage. As long as all the numbers match that makes no difference to you. In the interim technically the insurance company is on the hook but the future value of the home secures their investment. Because of this they choose the contractor and usually put the contract out for tender.

At this point the insurance company will give you three choices, replace what was there exactly, at the end your mortgage will be exactly what it was before, self explanatory. Take a pay out and you are responsible for the re-build or if you choose to to pay off the old mortgage with that money. Or cover changes and overages in the re-build yourself either by renegotiating your old mortgage or savings and working on those directly with the contractor.

Which option you choose is really specific to your circumstances and what you want. For example if you live at a distance option 1 is a really good one. It is usually the simplest option and if you just want it back the way it was before go for it. Since everything will be brand new when it’s done your ‘new old’ house might be worth more than you paid for it. Cosmetic cost neutral changes are no big though! You can still update finishes like paint, tile and fixtures if they were dated. For example if you had olive appliances dating to the 70’s you can totally pick black or white.

Option 2 is perfect for someone who wants to downsize anyway. Say you lost a $300 000 5 bed 4 bathroom home home with $100 000 left on the mortgage but would like to replace it with a 3 bed 1.5 bathroom home costing $150 0000. Your settlement would be about $300 000 with the first $100 000 going to the bank to pay off your mortgage. At the end you’ll have that smaller home and $50 000 leftover to put away and no mortgage. But… be prepared to negotiate that settlement if you choose this option, you might even consider hiring a lawyer out of pocket to help. The first offer the company makes you is just that, a first offer so be prepared to go back and forth a few times.

Option 3 is favoured by people who were planning a renovation anyway. You have to go back and forth between the insurance company and the bank convincing the bank that the new house will be worth what the old one was and at least as much as you are hoping to borrow. Or you can use savings to cover the extras.

What if your broke?

Like maxed out, overdrawn, pay check to pay check broke? Well you’re not the only one and sometimes disaster strikes these folks too. In this case you just have to do a bit more running around to get your belongings bought. I had about $8 000 of stuff to buy when my place flooded and that was about the limit on my visa, I shopped hard and fast to get it done and my cheque within the same month. But had I not had the credit I could have totalled up each of the lists at each store, put items on hold and the insurance company would have paid the retailers directly. So they’ve got you covered if this is you too.

What’s not covered

There is a long list of standards that are not covered like nuclear war, damage incurred in the commission of a crime by the policy holder or potentially others if the homeowner declines to prosecute the crime but these are pretty rare circumstances. Leaks and bursts are covered but damage due to seepage (think leaks from a long damaged roof) are not. There are exclusions and limits in a standard policy that limit the coverage in a given category. My parents learned that when they were robbed. Their policy had a standard $5000 jewellery line which turned out to be woefully inadequate. Now they probably thought that was insufficient but close enough. And if one assumed that they didn’t get my mom’s ring (or maybe they had a specific policy on it) it was pretty close. Did we have a royal family jewel collection no and well kinda. My dad often got my mom a piece of jewelry for birthdays and especially christmases for a couple hundred bucks. (which he got at costco so the replacement value was higher). My extended family has a tradition of gifting really nice, grown up jewelry for baptisms and my mom’s engagement ring was substantial and not generally in line with what you might expect in our family (btw it wasn’t stollen). Plus none of us get rid of ‘real’ jewelry we don’t ware anymore. So that giant gold charm bracelet from my mom’s teens and about 15 tangled necklaces were still there largely forgotten about too. The thieves ended up with well over $15 000 in jewellery. But on any given day I might be wearing $3000 dollars of jewelry. Am I a lost Hilton sister, no that’s just my ring, apple watch and glasses all considered jewelry by the insurance company and that goes to $3600 if I’m in the car with my back up glasses and prescription sunglasses so take a look at your policy and get out the calculator. The good news is buying specific coverage is incredibly cheap. Our policy covered $1500 in bicycles to up that to $5000 (more than we needed costs $6 per year), however engagement ring insurance can be less reasonable. PS I asked and if you wear it while running it’s not usually considered sporting goods but clothing.

Some other common lines to look at are:

  • sewer backup standard is $10 000 (about $50 to take it to $60 000)
  • electronics
  • sporting gear
  • total contents
  • total structure
  • jewelry
  • anything else you’re not ‘average’ on

Other categories can be hard to even get or keep coverage on such as:

  • Boats
  • docks
  • overland flooding (depending on where you live)
  • storm surges

Overall

It’s a good idea to read over that policy every couple of years. Most people do set up a good policy but then their lives change and they just keep renewing the same out of date policy. This means your policy might not reflect what you currently own and how your home currently looks. We sign up when we are house poor in our fixer-upper, under furnished and the only quality object we own is our car. Then we renovate, extend and install whirlpools and granite counters. We trade our one handed down mattress for three or four bedrooms fully out fitted with wood bedroom sets and a plastic card table for a teak dinning room set. Plus the totals might not make sense anymore in today’s dollars.

Claims for house insurance don’t usually affect your rates like car insurance. But other than some high risk (flooding) and high fraud categories (theft) one claim is not going to affect your rates a whole lot. Mine went up $68 a year after my $40 000 flood. And it usually takes multiple similar claims to get you into crazy rates. The condo insurance policy didn’t get dicey until we had 3 floods totalling almost $200 000 all from burst pipes.

This is just my experience with 3 claims in my life (one as a teenager), a further huge one as condo president, a giant one at work and about 15 for customers. Please, please, please add your experiences and tips. Finally usually by the end it all seems worth the headaches and your freshened up place ends up being a silver lining. So about the same as any other renovation you just don’t get to choose what time is best for you!

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