by Josh Frankel, CFP®
Executive Vice President
Planning for the risk of unknown events is a key component of a solid financial plan. The following video addresses five ways to manage risk as well as long-term care and personal liability insurance considerations. The accompanying article includes fire safety resources and some tips on protecting yourself financially through fire and other losses.
In the United States we experience more than 365,000 fires and 2,650 civilian deaths every year, resulting in $7 billion in property damage, according to the National Fire Protection Association. With these statistics in mind, we encourage you to take steps to protect yourself both physically and financially.
The U.S. Fire Administration and FEMA have created a fire safety checklist, which serves as a good reminder on important mitigation measures. Properly functioning smoke alarms and a fire escape plan are especially important during fire season. If you live in an area at risk for wildfires, consider your community escape route as well. The need for planning was especially evident following the Camp Fire, which demolished the town of Paradise, California, and claimed 85 lives on November 8, 2018. Our colleague, Mary Lago, CFP®, CTFA, grew up in Paradise and was pacing our office that morning after losing contact with her mother, who was temporarily trapped. Thankfully, her mother safely emerged a few hours later, but soon realized she was among roughly 50,000 people who were displaced.
Photo Credit: NBC
In addition to fire safety, it is critical to ensure you have proper insurance to cover potential losses. The fire destroyed nearly 15,000 homes, caused an estimated $16.5 billion in damages and left insurance companies in disarray. The unfortunate reality is that many individuals did not fully understand their insurance coverage and terms and were not adequately insured for their temporary living expenses or the cost of replacing their homes and belongings.
Using the Camp Fire as an insurance case study, this article provides general guidance to better understand your own home insurance needs and properly protect your family and property. Many families and individuals are not adequately protected and may not achieve their financial objectives because of unexpected and unprotected losses. Perhaps you selected an agent and purchased coverage when you graduated
There are many considerations to building a solid insurance plan and we recommend conducting an annual review with your insurance agent. During your next review, here are 10 questions to ask about your homeowners’ policy:
Does your homeowners policy contain actual cash value or replacement cost?
Do you need documentation of your belongings in the event of complete loss?
What level of coverage do you have for your living expenses while you need you rebuild a home from potential loss?
Does the policy cover all risk, as opposed to named perils only?
Does the policy determine the value of the home by an interior-exterior home appraisal service, as opposed to a formula or an estimator?
Does the policy reflect changes in construction costs? And, has coverage been reassessed after home improvements?
Is the covered home in an area with potential exposure to natural catastrophes—flood, windstorm, earthquake, wildfire?
Does the covered home have special liability exposures, such as swimming pools, recreational equipment, etc.?
If the home is uninhabitable for a period, does the loss of use provision allow the policy owner to maintain her or his customary standard of living?
Is there a cap on coverage when rebuilding a home to code after a loss?
Guidance on these questions will be a step toward ensuring you have proper protection. There have been many lessons for the former resident of Paradise as they first struggled to understand their coverage. They then began the often-complicated insurance claims process and are now navigating recovery of uninsured losses with PG&E. In the aftermath of the Camp Fire and more than 18 months later, many individuals were surprised that actual cash value meant they would receive the depreciated value of their items rather than replacement cost. Others have hired public adjusters or legal counsel in order to be paid for coverage they did have in place. The process has been further complicated by the fact that most individuals did not have documentation of their belonging after their homes and the businesses where they purchased items were destroyed. Some insurance companies suggested individuals should have maintained complete records and copies of receipts in the cloud. In addition, what was extremely impactful was the amount of coverage individuals had for covering their living expenses while they rebuilt their lives.
Although this is not a pleasant topic, it reinforces how critical it is to take steps knowing that no one can completely protect themselves from loss. But this real-life example illustrates how planning can help accelerate the recovery process.
We encourage you to review your coverage, but even more important is to work with a trusted agent who can help explain your policy and coverage and a reputable insurance company that will promptly pay appropriate claims.
Ferguson Wellman and West Bearing do not provide tax or legal advice. This material has been prepared for general educational and informational purposes only and not as a substitute for qualified counsel. You should consult qualified professionals to understand how this information may, or may not, apply specifically to you.