Factors That Affect Your Home Insurance Settlement

Two homes may get different insurance payouts after suffering the same disaster or loss. The difference arises because the factors determining home insurance settlements are so many that they are unlikely to be the same for two houses. Below are examples of these factors.

Coverage Type

Home insurance companies provide two main coverage types: replacement cost and actual cash value. The replacement cost guarantees you the compensation that replaces the damaged or lost property. The actual cash value guarantees you compensation equal to the current market value of the damaged or lost property.

Consider an example where you lose an appliance worth $10,000. With replacement cost coverage, the insurance company will replace the appliance even if its current value exceeds $10,000. With an actual cash value, the insurance company compensates you for the item's depreciated value, even if the compensation cannot replace the appliance.

Coverage Limit

Home insurance policies have limits and sublimits for various coverage forms. The overall limit defines the maximum the insurance company can compensate for a loss. For example, an overall coverage limit of $500,000 means you cannot get more than the amount even if your damages exceed the amount.

Sublimits are also available for different categories. For example, there are sublimits for:

• Your home's contents
• Additional expenses due to loss of use
• Other structures
• High-value items, such as electronics

Consider an example where you lose your $100,000 watch collection to a burglar. Assuming your policy has a $50,000 sublimit for such items, you can only get compensation worth the same amount.

Damage Nature and Extent

The damage extent determines whether you can stay or vacate your home during the repairs. For example, you don't usually have to leave the house while contractors repair the windows after a storm. However, you may have to leave your home if you need water damage remediation and roof replacement.

This distinction is critical because homeowners insurance includes compensation for additional expenses you might spend outside the home after a disaster. You only get compensation if the damage is so extensive that you cannot stay in the house.

Consider two damages, each worth $10,000. If you have to leave your home for damage A and not B, then your total compensation for A will be higher than that for B. The difference arises because compensation for damage A will include additional living expenses.

Damage Mitigation

Your insurance company expects you to prevent further damage after the initial accident or disaster. The insurance company does not expect you to take extraordinary or professional measures to limit the damage. However, the company expects you to do what a reasonable person would do under the same circumstances to limit the damage.

For example, a reasonable person would board up their windows after a storm to prevent water intrusion before a contractor fixes the windows properly. Your insurance company might not fully settle your claim if you don't take such damage mitigation measures. The rationale is that you allowed the secondary damages to occur.

Proof

As you would expect, your insurance company won't take you at your word if you ask for, say, $15,000 in a claim. Even if the damage is worth that much, you only get the compensation if you can prove it. For example, you should:

• File a police report for damaged items
• Provide valuation reports for lost or damaged items
• Provide copies of receipts to prove items' values
• Provide contractor estimates for repairs

The more evidence you can provide, the more likely you will get the compensation you deserve.

Metropolitan Insurance Service Consultants, Inc, can help you buy the right home insurance coverage at the right price. We understand the home insurance industry, as we have many decades worth of industry experience. Contact us for all your home insurance needs.