Publication Date: Wednesday, April 7,
Trial by fire
Reviewing your insurance could prevent financial ruin
by Dana Green
Oscar and Margaret Rosenbloom, the loss of their home to fire
nine years ago is still painfully fresh in their minds.
The fire started at 10 a.m., after a candle was left burning
in the attic. Although the house remained standing after the
fire, the walls were weakened enough that the home had to be
torn down and rebuilt. The home they had lived in for 20 years
"When you have a sizeable loss, you are in a state of shock," Oscar
The destruction of the Rosenbloom's personal library was particularly distressing.
Although they did not have written records, most of their rare books were still
intact. They were able to identify each book to determine author, title and estimated
But first, the Palo Alto couple had to find out if their insurance
would cover the cost of rebuilding their lives. "You have to gulp and look at your policy,
see what you have," he said.
The Rosenblooms were forced to take a hard look at their homeowners insurance
-- but it is best to do it before disaster strikes. In the wake of the Loma Prieta
earthquake and the Southern California wildfires, insurance experts are recommending
that homeowners take a closer look at their homeowners policies. Homeowners can
save money -- and heartache -- in the event they lose their home in a catastrophe.
Although insurance policies are infamous for excluding major disasters such as
floods and earthquakes, homeowners insurance should cover the cost of rebuilding
a home if it is destroyed by fire. But that's only the case if one's home and
possessions are adequately insured.
The following tips can help ensure homeowners have sufficient coverage and can
file a claim quickly in the event a disaster occurs:
Conduct a regular check-up. The first rule of thumb with
homeowners insurance: Don't just get it and forget it, Palo Alto
agent Bob Anderson said. Anderson likes to sit down with his clients annually
review their policies.
"They walk out of your office and in eight years they make a claim," he
"That's why it's nice to review."
If a homeowner does not have a local broker or agent, he or she
can carefully examine the policy to make sure it adequately covers
the current home, its contents
and any outbuildings on the property, such as a pool house or guest
cottage. If the home has been remodeled, the original policy
probably needs updating.
In the view of Chris Grammar of Allied Brokers in Palo Alto, if
homeowners have not looked at their policy in a few years, it is
probably not enough to cover
the value of their home or personal property.
"If the client isn't checking, they're probably underinsured," he
Find out the costs to rebuild. The destructive Oakland
fires were an eye-opener when it came to rebuilding costs in the Bay
Area. With the steep slopes in the Oakland hills, the bill came in at $400
per square foot rather than the $100 national average, according to Grammar.
"If you're not insured for $200 per square foot, you're underinsured," Grammar
said. "If your home is over 2,000 square feet, that bumps
it to $300 to $400 -- at a minimum."
Both Grammar and Anderson suggest that homeowners get estimates
from local contractors to determine the cost to rebuild their home.
While most policies estimate for
inflation using national figures, the amount might be laughable
in pricey Peninsula neighborhoods.
If a home has features that will make it very expensive to rebuild,
such as an intricate roof line, historic molding or a sharp slope,
look into an additional
endorsement to cover the expense. Also, make sure to cover the
costs of building code updates -- if 50 percent of the home is
burned, the homeowner is responsible
for bringing the whole house up to code, Grammar warned.
Remember to base coverage on rebuilding costs, not a home's
market value. If a modest-sized home is worth a million dollars,
cost to rebuild
less. If you are insuring your home for market value, in Anderson's
can be wasting a lot of money."
Pay attention to limits and exclusions. If a mudslide
destroys your home, what do you get? About $2,500, according
When it comes to personal property, limits and exclusions get even trickier.
There are limits for jewelry, computer equipment, furs, silverware
and business property. For example, artwork that falls down during an earthquake
in a standard homeowners insurance policy.
Look into an umbrella or "all-risk" policy, or
getting an endorsement that covers those specific items,
if the replacement
property are not covered by property limits, Anderson said.
Consider an additional policy if you run a business
out of your home. An
electrician who carries his tools in his truck will not be
entirely covered in case of theft -- his tools are considered business equipment.
There are severe limits on business equipment in the home -- and, often,
Grammar recommended separate insurance if a home business
gets quite a bit of foot traffic or involves expensive equipment. "If customers come over to
your house on a regular basis, you probably need a separate policy," Grammar
Make sure you have adequate loss-of use-expenses. In
the event of a catastrophe, loss-of-use coverage pays for
temporary home, hotel expenses, storage and other incidental expenses while you
are rebuilding. The
average three-bedroom unit rents for $2,783 in Palo Alto,
RealFacts, a rental data collector. And in the case of a widespread
calamity such as
wildfire, where the whole neighborhood is affected, it could
take as long as two years
for swamped contractors to get to your home. Homeowners should
make sure that their loss-of-use clause will give them adequate time and
back into their new house, according to Grammar.
Make an inventory. You remember you had a set of
golf clubs, but what brand? Where did it come from? Insurance
recommend that homeowners keep a detailed inventory of their personal property.
An easy method is to walk
through the house with a video camera and describe possessions
in detail. Have antiques or other valuables assessed so that you have a
value, and safeguard the inventory off-site at the office
or a family member's
Remember that property coverage needs to cover the replacement
cost of personal items, not their actual value. A 10-year-old television
set, for example, is
going to need to be replaced with a new one -- at today's prices.
Evaluate whether you need earthquake insurance. There
is a one in five chance that a quake of 6.7 or greater will
the Peninsula segment of the San Andreas fault in the next 30 years, according
recent U.S. Geological
Survey probability report.
"Palo Alto is actually in a pretty vulnerable position," said Tom Holzer,
an engineering geologist with the U.S.G.S. Earthquake Hazards Team in Menlo Park. "We're
going to get shaken pretty hard."
Deciding to carry earthquake coverage is an individual
decision -- and a difficult one. About one-third of his
to Anderson. "I have debates between husbands and wives about it," he
After the Northridge earthquake in 1995, many insurance companies
raised rates or stopped offering coverage for earthquake damage.
Premiums can be expensive
and often deductibles are as high as 15 percent.
Those unwilling to take the risk should shop around for earthquake
coverage, Grammar said. The state of California created the California
(CEA) to offer earthquake insurance to Californians after Northridge.
Other insurance companies still offer earthquake endorsements or
stand-alone policies, but prices
vary widely. Be sure to check limits and exclusions on any prospective
All these additional endorsements and higher coverage, of course,
often translate into higher premiums. The best way to bring premiums
back to earth is to raise
the deductible, according to Anderson.
"The average person makes a homeowners insurance claim every 9 1/2 years," Anderson
said. "Most individuals will end up paying more in premiums than they would
pay for a higher deductible." Homeowners insurance is
designed to protect homeowners from a true disaster -- be
pay a $5,000
deductible in exchange for lower premiums, Anderson said.
Both agents suggested paying out-of-pocket for smaller claims,
like a stolen bicycle or a broken fence. Insurance companies will
often refuse to cover clients
with a string of small claims, forcing them to turn to high-cost
Grammar advised filing one claim every five years to keep
your claims record clean. "Plan on self-insuring for the small stuff," he
If a family does suffer a major calamity and has to file a claim
on its homeowners policy, the trauma and shock can often be overwhelming.
If a claim is particularly
large or complicated, or the homeowner is unable to handle the
extensive work required to catalog his or her losses, hiring a
public insurance adjuster might
The Rosenblooms found that hiring an adjuster to represent
them helped ease stress and speeded up the difficult process. "They were invaluable in helping us
get on our feet," Oscar Rosenbloom said. "You're
not completely on your own."
A public adjuster will examine his clients' policy and negotiate
a claim directly with the insurance company on their behalf. Ten
percent of the claim is a standard
fee, according to Grammar. Public adjusters are required to be
licensed by the state of California; it is also wise to get a referral
and thoroughly check references.
Although both Rosenblooms still vividly remember every detail from
the fire, they now know that it is possible to move on after the
loss of a home. Although
it seems like it at the time, it's not the end of the world, Margaret
"In a year's time, it's going to seem very different," she said. "The
insurance provide you the resources to rebuild."
Editorial intern Dana Green can be reached at email@example.com.