The recent tornadoes that ripped across the Dallas area causing millions in damages, left homeowners with more than just destruction of property in its path. These storms gave Dallas homeowners the opportunity to learn valuable lessons as to how their home insurance claims would be handled. For me, the insurance agent, it was a first hand account of different scenarios that will help further educate my clients and readers. Luckily for me, my dad is general contractor with over 30 years building experience in North Texas. So I wasn’t surprised when I got dad’s phone call asking for insurance advice.
After spending an entire day with residents during the cleanup effort, I noticed that homeowners fell into three distinct categories.
Scenario 1: Force Placed Insurance – Undercovered and underinsured.
The first homeowner I spoke to, initially thought she was uninsured. Here concern was that her voluntary home insurance policy lapsed over a year ago. Because her home was currently financed, the mortgage company force placed an insurance policy to protect her home’s structure. After asking a few questions, I suggested she called her mortgage company to determine if coverage existed.
Luckily for her, she has a limited amount of coverage. The downside is that she was underinsured. When a mortgage company insures your home, their insterest is in their ultimate financial interst. As a result, this homeowner only had approximately $70,000 available to rebuild or repair her 1500 square foot home. I used insurance industry valuation software to determine an actual replacement value of $153,000. This means she was under insured by $63,000 on her structure alone. Ultimately, this homeowner may need to pay for some of the repairs and her additional living expenses out of pocket. At this point, she should hope that FEMA steps in with grants and smaller loans in order to help bridge the gap between her insure losses and her actual losses. Needless to say, the road for this homeowner may be very difficult.
Scenario 2: Uninsured Homeowner – No Mortgage Company and No Home Insurance In force
The second homeowner I spoke to, had an even worse scenario. Their home was finally paid for. Prior to paying off the home, he had force placed insurance. As a result, there was no mortgage company or force placed insurance company to supplement his losses. As a result, his home is destroyed. He has enough cash reserves to rent a property for about a year. As for his home, he has the option of demolishing his home and finance the building of another home. Otherwise, he could wait and see if FEMA will kick in assistance in the form of grants and low interest rate loans. His replacement value was approximately $143,000. Therefore, his dwelling was underinsured by $143,000. It was also a total loss.
Scenario 3: Insured Homeowner – Coverage insured at 100% ITV.
By now, I got extremely discouraged. Until I met the next neighbor. He made me laugh when he called himself a “professional insurance company bleeder.” After I stopped laughing and composed myself, he told me his story. This homeowner was a gun collector and former law enforcement officer. He said that he paid extra insure his wife’s jewelry as well as his gun collection and his gun safe.
The tornado tore the roof completely from the home leaving every room exposed to the elements. He said that his insurance company immediately gave him a debit card for his emergency expenese and additional living expenses. His adjuster was scheduled to visit his home in 2 or 3 days, but they assured him that he was covered. His policy was different.
Not only did he have enough replacement cost, but his agent even increased his dwelling by 25% by adding an endorsement that kicks in if his $130,000 replacement cost was not enough to demolish his old home and rebuild a new home. As a result, while his neighbors were living with relatives and borrowing money to get by, this homeowner benefitted from the following:
Additional Living Expenses: This coverage pays for your increased cost of living while your home is being rebuilt due to a covered claim.
Personal Property Coverage: This coverage pays for any personal effects that were lost or destroyed as a result of the storm.
Of all three scenarios, which do you think cost more? This is a trick question. Generally, the force placed insurance is more expensive than the insurance you find on the voluntary market. That held true in this case. After pricing what the insurance “could” have been for scenarios 1 and 2, I found that the insurance was under $100 per month in both cases. This is unfortunate considering the fact that $100 stood between them and complete peace of mind.
Which scenario scenario best fits your current situation? If a storm were to destroy your home, are you uninsured, underinsured, or properly insured? Knowing the answer to this question could make the difference between your borrowing money and staying with relatives or living in a hotel having your additional expenses taken paid.
The average home insurance premium in North Texas is approximately $1400 per year. If you paid $1400 year for 30 years, you still would pay less than the insurance company after a fire or tornado. If you have questions about your homeowners insurance policy, contact us here to schedule a free insurance evaluation.