AAA guide to the homeowners insurance claim settlement process

If you have suffered damage to your home or personal belongings as the result of a natural disaster, you likely have many questions about how your homeowners insurance settlement process works. We understand that submitting a claim can be confusing, and that’s why we’ll be there to assist you along the way.

File a claim as soon as you’re able to safely return to your home

Upon returning to your home after a fire or natural disaster evacuation, survey the property for damage. Contact your AAA insurance agent to begin the claims process. As the first step in the claims process, AAA will assign a claims adjuster to work with you.

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Working with your claims adjuster

Your claims adjuster will walk you through the claims process, answer questions, and estimate the damage to help you rebuild. 

Debris removal will be the first order of business. Your debris must be removed prior to rebuilding. Your AAA homeowners insurance policy provides a set amount of debris removal coverage, often stated as a percentage of the physical loss or damage. 

Although your claims adjuster cannot advise you on whether or not to have the government conduct the debris removal, for widespread disasters, local and state governments may create consolidated debris management programs. Participation in such programs may be restricted by a deadline and require affirmative action from policyholders. California is running one such program for debris related to the 2017 wildfires; AAA encourages those affected to review the debris removal program while working with your claims adjuster. 

Evaluating your insurance needs

After a loss, work with your insurer or agent to determine the appropriate level of coverage to maintain during the rebuilding process. Be sure to adjust the coverage as necessary once the home is rebuilt.

Keep homeowners insurance coverage in force during the rebuilding process. Talk with your agent or insurance company and decide the appropriate level of insurance to carry for your dwelling while it’s under construction. Remember to reassess your coverage once the house is rebuilt.

It is important to ensure your coverage limits adequately reflect the cost to fully rebuild your completed home.

Also, consider purchasing flood insurance and earthquake insurance. These perils are not covered by most homeowners insurance policies. Talk to your AAA homeowners insurance agent about the best way to insure against the risk of mudflows or landslides, as rain following major fires can add to these risks.

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Types of insurance coverages

As your claim proceeds, a payment or payments will be issued based on your coverages.

The insurance coverage you purchased will determine if you receive the full replacement cost to rebuild your home and replace its contents, or if the amount you receive will be based on the condition of the property at the time of loss.

You may also have extended replacement costs coverage that protects you in the event that a surge in demand, often following a disaster, results in an increase in costs to rebuild your home.

Many policies also have coverage for building code upgrades to ensure homes are built in compliance with newer building code standards.

A typical homeowners policy has several separate coverages, so you might receive different checks for different coverages. One common type of homeowners insurance policy is structured as follows:

·         Coverage A: Covers your home’s structure.

·         Coverage B: Covers detached structures such as a garage, and is generally a percentage of the Coverage A limit.

·         Coverage C: Covers the contents and the personal possessions in your home and is generally a percentage of the Coverage A limit.

·         Coverage D: Covers you while you cannot live in a home and reimburses you for covered expenses such as food, lodging, gas, etc.

Be sure to have regular communication with your claims adjuster to ensure that your claim is settled efficiently and smoothly. 

Scope of work

Your claims adjuster will work with you and your contractor to develop a scope of work (SOW). This is a detailed building plan used to reconstruct your home. The adjuster reviews your previous floor plan, square footage, and interior finish items such as carpet or wood flooring, counter tops, cabinetry, molding, and plumbing.

Homeowners insurance with replacement cost coverage will cover the cost of rebuilding your home with materials of like kind and quality, and are subject to the limits and terms of your insurance policy.

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Tips on avoiding construction scams

Unfortunately, as the rebuilding process gets underway, unlicensed contractors and scam artists may try to cash in on your misfortune. It is natural for homeowners to be in a hurry to begin making repairs following a natural disaster. However, you will save yourself a lot of time, money, and frustration by taking the time to check the credentials of the businesses and individuals before you hire them to repair your property. 

• Always check references. Call other clients who have had projects completed by this contractor and find out how they felt about their experience. 

• Be suspicious of any contractor who tries to rush you. If possible, shop around for a contractor by getting recommendations from friends and neighbors. Be wary of anyone knocking on your door offering unsolicited repairs to your home. 

• Never pay for work up front. Always inspect the work and make sure you’re satisfied before you pay. Pay in installments as work is completed to your satisfaction. Do not pay anything until you have a contract signed by both you and the contractor, and until after you have checked the contractor's license with a state licensing agency. 

• Check credentials and licenses with your state's contractors licensing board, the Better Business Bureau, or state attorney general’s office to see if the firm has any outstanding complaints. 

• Always have a written, detailed contract that clearly states everything the contractor will do, including prices for labor and materials, clean-up procedures, and estimated start and finish dates. Never sign a contract with blank spaces, which a crooked contractor can alter after they've gotten your signature. 

• Don’t believe a contractor who says they're endorsed by the government. The Federal Emergency Management Agency (FEMA) does not endorse individual contractors or loan companies. 

• Avoid paying with cash; use a check or credit card instead. This creates a record of your payments to the contractor. 

Working with your mortgage company

After a major loss there are many questions about routine activities. For instance, should you continue to pay the mortgage, taxes, and insurance? Here are a few helpful tips to keep in mind during your home rebuilding process.

• Homeowners should continue to pay the mortgage and property taxes. 

• Your bank may require insurance payments to be put into an escrow account and require two signatures in order to draw funds to pay contractors. This is a standard practice that ensures that the work is done, and done correctly. 

• The bank may also require inspection of completed work. This protects your home and makes sure it is fully rebuilt. 

• If you choose not to rebuild, you will still owe your mortgage company any balance on your mortgage, and your escrowed insurance proceeds may be needed to make such payments.