As victims of the worst fire in American history attempt to pick up the charred pieces of their lives, consumers everywhere should take a few moments to review their fire insurance coverage.
The Northern California blaze, which consumed 2,700 homes and caused an estimated $1.5 billion in damage, will soon serve to underscore the financial havoc wreaked on those who have inadequate fire insurance.
What consumers sometimes forget until they are victimized by a fire is that you don't just lose your house. You are likely to lose everything in and around it, including cars, furniture, clothes, jewelry, television sets, stereo equipment, photographs and memorabilia. Not to mention landscaping, garden tools, lawn furniture and fencing.
Adequate insurance coverage and a good inventory can determine whether you'll be able to quickly rebuild your home.
Industry experts maintain that you should review your coverage every year. Once you've gone through the process the first time, these annual reviews should only take a few minutes.
What do you need to do?
First take an extensive inventory in your house.
If you think a full inventory isn't needed, do the fire insurance test, suggested Peter van Aartrijk, a spokesman for the Insurance Information Institute. Stand in your kitchen and close your eyes. Then try to list every item in the house, starting with the living room and moving your way back through the bedrooms and bathrooms.
Although most people could list the big items--such as furniture, art and electronic equipment--few would be able to say how many suits or sweaters of pairs of shoes they own. And you don't need to be Imelda Marcos to find that replacing all your shoes costs a small fortune, he added.
Can you list all the tools in your garage? How about your kid's toys? Bric-a-brac in the drawers? What about art work, frames and books? Vases, china, clocks, pots and pans?
All these items will help determine how much you get from your insurer. Chances are, those who have a complete list will get far more than those who don't.
Nevertheless, writing down all those items may seem like a daunting task. And it is. Still, it is worth doing, if you have no other option.
But if you have a video camera, you might consider creating a record by standing in the middle of each room and slowly tape recording your possessions by panning around a complete circle. If there are closets and cupboards, you should systematically show on the recording what is in each. Make sure to talk through the recording, giving as much detail about the items shown as possible, including whether items are new and their approximate cost, if known.
If you don't have a video recorder, a regular camera will also suffice to keep records. The video just tends to be a bit easier since it creates a continuous record, which limits questions about overlapping shots or parts of the house you might be missing in snapshots.
Of course, you need to store your list, photos or video somewhere that won't be affected if your house burns down. Industry experts suggest that you keep this information at your office, with a trusted friend or relative (who doesn't live close by) or in a safe deposit box.
Once the inventory is complete, look at the coverage and limits on your insurance policy to ensure that it would still compensate you for the bulk of any potential losses.
Specifically, you should make sure your home is insured for at least 80% of its replacement value. If you have less coverage, you may not be fully reimbursed for any partial losses.
Also find out whether your belongings are covered for their "actual cash value" or for their replacement cost. If they are insured for cash value only, you will get reimbursed for replacement cost minus depreciation--theoretically the same amount you would spend if you were able to buy the same furniture used. If you have a replacement cost policy, you should recover enough money from your insurer to buy these items new.
Most policies cover cash value only, Van Aartrijk said. If you want something more, talk to your insurance agent about what it might cost.
Additionally, if you have unusually expensive belongings--jewelry, furs or antiques--you should ask your insurance agent if they are fully covered under your policy. Even some replacement cost policies have limitations on how much they'll pay for specific items. If your prized possessions would not be covered, you might want to purchase a "rider" that specifically covers those belongings that otherwise would have been under-insured.