What To Do Before Disaster Strikes

Already this year, ice storms have devastated northern New England, El Nino rains have battered Southern California, and tornadoes have hammered cities from Oklahoma to Maryland. In recent weeks, brushfires have destroyed more than 100 homes in northern Florida. And the hurricane season is just beginning.

It's hard to imagine the toll taken by a natural disaster: family members injured or killed, homes destroyed, businesses shuttered, whole towns living in high school gyms.

But at least, you think, insurance will pay to repair the damage. Except in many cases it does not. You may not be covered at all for some losses, or carriers may refuse to give you full value for your home and its contents. "There are a lot of companies that will lowball," says Robert Hunter, director of insurance at the Consumer Federation of America.

How can you protect yourself? The easiest way is to make sure you are fully insured--well before disaster strikes. Here's a checklist:

-- What's covered? Most policies will protect you against fire, theft, and wind. But they exclude earthquakes, floods, and sewer backups.

You can buy extra protection against backups for a few dollars. Earthquake insurance, by contrast, can be very costly. In California, you'll have to buy it from a state pool.

Flood insurance is provided by the federal government, although you can buy it through most agents when you purchase your homeowner's policy. It will cost an extra $300 to $500 a year for a typical home, but if you live in an area that floods, you will need it.

-- Will your carrier pay 100% of the cost of rebuilding your home and replacing your personal property? You should always purchase full replacement insurance. But buyer beware: Carriers are now limiting what they will pay, even for full replacement policies. Even if you get replacement cost coverage, your insurer still may not make you whole.

Say you have such a policy, which states the value of your home is $200,000, but estimates to rebuild come in at $300,000. Until recently, insurers would cough up that amount. But because they had consistently understated home values in insurance policies, and because replacement estimates can run very high, insurers were getting killed. Now, major property and casualty insurers, including industry heavyweight Allstate Insurance Co., will only give you the $200,000 plus an additional 20%, or $240,000. So if your house is totaled, you may be on the hook for the difference.

Allstate Senior Vice-President Ronald McNeil insists the company would still protect policyholders if a homeowner has lost absolutely everything: "I'd be hard-pressed to put the customer in the lurch at that stage of the game." But other insurers have kept the protection written into their contracts. Erie Insurance Group--which writes mostly in the Mid-Atlantic states--says it still will pay all rebuilding costs. So will Chubb Group, though it will only provide 150% of value in some disaster-prone areas.

Keep in mind, though, that all insurers will want to know if you have done a big renovation. If you haven't been paying premiums for the added value of those improvements, no insurer will replace them.

-- What contents are covered? Generally, policies will insure your possessions for up to half the value of the house itself. If your home is insured for $300,000, its contents are protected for up to $150,000. But that doesn't mean your carrier will just write you a check for that amount--no questions asked. To get the full value of what you lose in a disaster, first get full replacement cost coverage for contents. "Cash value" insurance is worthless. You will get the depreciated value of what was destroyed. Thus, your three-year-old 50-inch TV may only be worth $200.

You may also have to prove that you actually owned that set, especially after a total loss. To avoid problems, make a record of all your possessions. "Take a tour of your home with a videocamera," says Chubb home-office catastrophe-claims manager Peter Seay. At the very least, take still pictures and make a written list. Store the documentation in a safe deposit box or ship it off to Uncle Harry in Altoona. And don't just store a record on your PC. It won't help if your desktop burns to a crisp.

Finally, make sure your insurer knows about your artwork, jewelry, and collectibles. If they are especially valuable, get them appraised and buy riders to cover them separately.

TRANSLATIONS. Since most policies are in legalese, ask your agent to explain your coverage, and insist that he show you, in the written policy, just what is covered. And do it on a lazy summer afternoon--before that big storm hits.

If a calamity does strike, be ready to deal with both your agent and an adjuster--who will determine the value of your loss. After the most serious storms, carriers will send their own emergency response teams to your town. The federal government may get involved, as well. The President could declare your county a disaster area and send staffers from the Federal Emergency Management Agency to set up shop.

FEMA can make small cash grants to storm victims and, through the Small Business Administration, make low-interest loans of up to $40,000 to homeowners. That can help, but it isn't intended to replace private insurance.

Once you are safe, contact your agent or call your carrier's 800-number. Good insurers will try to contact you within 24 hours of a catastrophe. But it will take days--if not weeks or months--to get a check for the full amount of your losses. Most companies will provide money right away for living expenses. That will pay for a hotel room and some clean clothes. A few, including high-end Chubb, will find you a rental house. Insist on enough cash to keep you going for a few weeks. "They should be handing you some pretty fast money if you can't live in your house," says Hunter.

Once you've restored some sense of order to your life, you'll need estimates for rebuilding. Unfortunately, the first days after a natural disaster are the worst time to do it. Demand for reputable local contractors is enormous, and fly-by-night operators descend on disaster sites like jackals. That will be a problem for getting estimates and, later, for doing the work.

If you can, find a contractor you've used in the past. But remember, there is no hurry. You'll be happier getting the job done right than getting it done fast.

Whatever you do, don't feel pressured to take the insurance company's first offer. You will be at your most vulnerable, and insurers know you are eager to get back in your house. If you think you are being low-balled, don't take their check. Use your own estimates to negotiate.

Remember that your bank probably owns more of your house than you do. And it will have first claim on any settlement. So be prepared to work with your mortgage lender to finance rebuilding.

Good insurance companies can help you get through a terrible time. Bad ones will make the pain worse. The best time to sort the good from the bad is long before disaster strikes. Review your homeowner's policy, talk to your insurer about additional coverage and riders, and do cost comparisons with competing carriers. Surviving a disaster is enough of an ordeal. At least you can plan now to make the aftermath a little less painful.