It was a sunny Mother’s Day, a perfect day for a family gathering. My wife had put a turkey in the oven for dinner with our children and their families.
What we couldn’t know then was that our perfect holiday was about to become an absolute disaster. Before the afternoon was over, our home was a near ruin--the result of a fire that started in the basement and spread rapidly through much of the house.
What wasn’t destroyed by the flames was heavily damaged by smoke or by the thousands of gallons of water pumped into the house by the firefighters trying to save it.
When the fire was finally out, the house had sustained heavy structural damage, and all the wiring needed to be replaced. Most of our belongings were melted or scorched.
And as the firefighters left that day, we began our crash course in managing a major loss.
In the months that followed, we learned that homeowners face four tasks in the aftermath of a major fire:
--Arranging for emergency living and closing the house to prevent further loss.
--Providing temporary electricity, telephone and water.
--Cleaning up and salvaging the house and its contents.
--Rebuilding and refurnishing.
The first step, though, is to find your insurance policy and reread it. These days most homeowner’s policies are written in laymen’s language, so it’s not that hard to understand what you’re entitled to and the limits of your coverage.
After reading your policy, call your agent, inform him or her about your loss and discuss your coverage to clarify where you stand.
Make sure you understand the payout policies for additional living expenses, contents replacement and building restoration. Find out in advance which payout checks will require co-endorsement. Determine the procedural details for final settlement.
Notify your mortgage lender so it can appraise its risk in the loss.
Within a day or so, a claims adjuster should contact you with information on how to process the cleanup and reconstruction claim. You should expect your insurance company to quickly provide you with a check to help you cover emergency living expenses.
Homeowner’s insurance covers the contents of the home in addition to the structure itself. It’s your responsibility to inventory all items destroyed or damaged. If you are not thorough, you’ll cheat yourself. But in making your list, remember that you’ll have to document the existence of all the items you claim. A photo or video inventory makes this an easier task, so take pictures of your furnishings and belongings before disaster strikes.
All destroyed contents must be listed, along with their age and current replacement price. It is a good idea to keep receipts of all replacement items you buy, although generally only items over $500 require receipts for reimbursement.
If you do not repurchase an item valued at $500 or more, most insurance policies will pay only the depreciated value for that item, even though your insurance policy has a replacement-value endorsement.
It may take a year or more to repurchase the myriad smaller items. In the meantime, product catalogues can help you to price many general items. Be sure to include shipping costs and sales taxes in your calculations.
As soon as you are past emergency living, however, obtain bids and sign fixed contracts to complete the restoration work.
If the building loss is large, consider hiring an accountant to organize replacement expenditures on a room-by-room basis, which is the way insurance-company estimates are structured. A consolidated report could be helpful in the event the insurance company estimate differs from your actual expenditures.
Also, a budget forecast may be needed before proceeding with work. When there is inadequate coverage, a 10% budget cutback, for example, may be necessary to help you manage your resources as effectively as possible.
For many, a home and its furnishings constitute most of a family’s assets. If the loss approaches the policy limit, managing the recovery becomes exceedingly important. Small percentage savings may involve thousands of dollars.
Although there are companies that will manage a homeowner’s insurance claims for a 10% or 15% cut of the proceeds, there are a few rotten apples in that barrel--and it’s difficult to cull out the good ones in the couple of days you have to do it. In addition, you relinquish the claim you’re entitled to by contract. In most cases, it’s better to rely on your own good sense to manage the recovery.
Most reputable companies will let the insured select a contractor to handle the repairs. The adjuster may offer the names of at least three contractors as an aid to the homeowner, but the final choice should be made by the insured.
Often, contractors prefer to work on a time-and-materials basis. While this may be necessary during the emergency repair phase immediately following the fire, it is usually not to your advantage to stay with such an arrangement. Insist that firm contracts be drawn up that will add to your peace of mind, especially if your loss approaches your policy limit.
The scent of insurance money sometimes lures greedy opportunists to the site. Although swift action is appropriate, select contractors carefully; you will have to deal with the consequences of your decisions for months.
Fire cleanup is dirty work, and restoration is usually more complicated than new construction. In addition, fire restoration specialists are almost invariably dealing with unhappy, stressed-out customers. So, fire cleanup contractors command premium prices.
Fire-cleanup companies specialize in getting their clients started on the restoration process. They have contacts to get emergency electric service, dumpsters and so on. Their function is to salvage building hardware and contents to minimize the insurance loss claim.
It is helpful to understand their objectives and procedures so you can cooperate with them. Their professionalism is in knowing when something is salvageable. If they make the attempt to clean an item but fail, they charge nevertheless. Fire cleanup contractors can be found in the Yellow Pages of the telephone book.
One gauge of professionalism involves percentage of failures in the attempts to restore individual items. A 5% failure rate can be considered good.
The acid residue from smoke, if not neutralized, is highly destructive. The sooner a cleanup company can neutralize those acids, the more smoke-damaged personal contents, building fixtures and hardware they can save.
Fire-cleanup companies balance salvage labor against material value. Generally, that is consistent with your needs. For your benefit, however, insist they first clean the acid from personal items that are salvageable and that no amount of insurance money can replace.
Choosing a fire-and-water-damage restoration company can be tricky, since these companies are not regulated by law.
Another group of specialists you will need to deal with are dry cleaners, furniture refinishers and upholsterers. Fire-cleanup companies have contacts with these contractors. Typically, they charge a 20% broker’s fee for making these referrals. When in doubt, use local businessmen instead; they have a local reputation to protect.
Once the cleanup phase is complete, you will need to find a general contractor; or if you plan to act as your own general contractor, you’ll need to hire tradespeople such as electricians, plumbers, decorators, and the like. Start your interviews by asking the contractors what they would do and why. (A contractor cannot afford to prepare a detailed estimate until he is reasonably sure he has the job.)
Compare their answers. Ask them to give you a copy of a typical proposal to review the level of detail the contractor is accustomed to providing. Finally, be sure the contractor has working capital to survive the checks and balances of insurance-payout procedures.
Not everything can be replaced with identical materials. Inevitably, certain appliances and materials will have been discontinued. Work closely with the contractor and the adjuster in carefully detailing the materials portion of the contract specifications.
Your adjuster will make initial checks payable to you for your emergency needs. Later, some interim payouts may be made payable to both you and the appropriate contractors. Never sign a contractor’s waiver form relinquishing your right to the insurance proceeds; retain your right to countersign insurance payouts until after you are satisfied that the work has been done properly.
If you have a mortgage, the mortgagee may also have to approve the restoration work and endorse the payout checks. When you close your claim, these payouts will be deducted from the covered loss.
Current IRS laws require a $100 deductible for personal casualty losses once they exceed your insurance reimbursement. There is also an additional deductible of 10% of adjusted gross income as shown on line 30 of Form 1040. These rules for personal casualty losses are covered in IRS Publication No. 947.
Another IRS publication, No. 584, has 22 pages of forms, organized by room, to help you document your losses for real property and contents.
If you do take a casualty-loss deduction, a thorough IRS audit of your return is almost inevitable. To make it as painless as possible, organize your records carefully as you proceed.
Most of us are already busy taking care of family, job and community responsibilities. Adding the burden of a casualty-loss recovery increases stress.
A helpful way to reduce that stress is to keep a diary. Your insurance adjuster will probably suggest that you prepare a statement about the fire for their file. This can be the beginning of your journal. Make a point of writing about the fire every day.
A healthful diet, restricting alcohol, daily exercise and a sense of humor help. A sensible attitude about possessions is important. Allow friends and neighbors to lend help; seek their support.
A large claim can’t be settled quickly. Relaxation is an important stress-control tool. Get away from the problem from time to time. Seek diversion; see movies or plan a get-away weekend.
Looking back, we can say our own disaster was heartwarming in one respect: Special offers of help and consideration sprang from everywhere. The neighbors across the street loaned us their week-old travel trailer for temporary lodgings. Other friends invited us to dinner or brought us casseroles. Several offered to help paint and wallpaper in the event we approached our policy limit.
Their support helped give us the strength to accomplish the complicated job of restoring our home and getting our lies back to normal.