If your home is damaged by a fire, a flood or another disaster, you may be relieved to know it wasn't completely destroyed. But it's important to understand how your insurance coverage works. You may still be required to rebuild the entire thing or have expenses that aren't covered.

What’s a “large loss”?

A large loss occurs when there is significant damage to a home or irreparable damage to a crucial part of its structure. The definition of a large loss can differ between insurance companies. Your Rathbun account manager can help you understand the differences between companies.

Many extreme weather events cause large losses. For example, flood damage may leave your home frame intact but undermine its foundation so it is no longer safe to inhabit. In this case, the structural damage may be so severe that it’s not worth the cost to repair it. Instead, the insurance company will make a full payout to rebuild. Large losses can also occur due to a catastrophic event like a house fire or natural gas explosion.

Your Rathbun Insurance account manager can explain the nuances of each policy and the coverage gaps that can result from them.

Insurance gaps and coverage solutions

Most insurers will waive your deductible on a large loss, often claims exceeding $50,000. That helps, but not all coverage gaps happen because of weather or seismic events. Many coverage gaps are a chain reaction of indirect expenses. Let’s look at a few.

Replacement cost. Most homes are insured to cover the cost of replacing the structure and contents if there is a total loss. This is called “replacement cost coverage” and it's a great way to insure your home and belongings. The catch is that a home typically increases in value over time, especially if you make improvements, like a finished basement, an addition or modernized siding.

If you don't update your policy regularly, your property could become underinsured, leaving you without adequate coverage. Most banks will ensure you have enough coverage to rebuild if you have a mortgage. That way, you’ll continue to make mortgage payments, and they’ll recoup the remainder of the loan. 

If you’ve paid off your loan, you could become unintentionally underinsured. Underinsurance can expose you to a penalty if you don’t have high enough limits for the replacement value of your home. Discussing your home's value regularly with your Rathbun Insurance account manager or seeking a professional property valuation can help you stay on track.

Take advantage of annual insurance coverage reviews and inform your insurance Rathbun Insurance account manager when you upgrade your house.

Widespread losses. Your insurance policy covers repairs and rebuilding under normal conditions. However, if a tornado or wildfire wipes out hundreds of houses in your area, the cost of labor and supplies might skyrocket. In that case, the replacement cost of your policy could be inadequate. 

You can enhance your insurance policy to build in a cushion by adding “extended replacement cost” or “guaranteed replacement cost” to safeguard your investment. Extended replacement will pay to rebuild your house to a specific percentage over your policy’s limit, such as 20% more. Guaranteed replacement will pay for rebuilding your house even if it exceeds your home insurance policy’s limits.

Remember that insurance companies will only rebuild your house to what it was before the loss, not improve it. So, if you had vinyl siding, you would not be approved to rebuild using cement board siding.

You want to rebuild elsewhere. What if you decide you don’t want to rebuild on the same lot? Many homeowners policies allow for that, though there may be restrictions on where you can rebuild, and some might only pay actual cash value. Talk to your Rathbun Insurance account manager about these nuances.

Debris removal. A typical homeowners insurance policy covers debris removal, anywhere between 5% to 25% of your policy limit. But if you need specialty treatment, such as asbestos or other hazardous material removal, you might encounter costs exceeding your typical debris coverage.

Debris removal can also become an issue with downed trees. If they fall on your property but don’t cause damage or block road access, they might not be part of the insured cleanup costs. Ask your agent about solutions to cover these expenses, especially for debris that doesn’t involve direct damage.

Damage to other structures. Standard policies usually cover other structures on your property, such as a shed or a detached garage. These have limits tied to the percentage of your home insurance, usually 10% of the policy. For example, if your home insurance policy is $250,000, you’ll have $25,000 for the other structures. But you probably won’t have enough insurance coverage to rebuild a shed and a two-car detached garage. You can increase the “other structures” coverage if needed. Your agent can help you decide.

Additional living expenses. Large losses often result in mandated evacuations or temporary relocations if the house needs to be torn down and rebuilt. If your home is damaged so severely that you can’t live in it, your homeowners policy offers additional living expenses (ALE). ALE covers living accommodations while your property is being repaired or reconstructed. Some insurers pay ALE on a reimbursement basis, which means you’ll need to budget for living expenses until the insurance company pays you back.

For example, you might need to pay for a rental from your own pocket. You'd submit the receipts to your insurer, and they would pay you back, up to the limits of your policy’s coverage. Understand your policy's limits and whether the company will reimburse you or offer you a stipend. Also, ask when and how the reimbursements will be distributed.

Consider the cost of staying at a hotel near your child’s school and the cost of food or pet boarding. Talk to your Rathbun Insurance account manager about increasing ALE coverage based on your needs.

Building codes. Your home must be repaired to current city building codes, even if it was subject to grandfather clauses at the time of purchase. Once you begin repairs, a building inspector may require you to rewire or replumb your entire house to meet current building codes. Standard insurance will cover only the damaged parts, leaving you to pay for the remainder of the project. If your home is older, you might have a crippling out-of-pocket expense.

Add “building ordinance or law” coverage to your home insurance policy to protect your budget from building code requirements.

Personal contents coverage. It’s essential to ensure you have enough coverage to replace your things, like:

• Clothing
• Jewelry
• Electronics
• Art
• Silverware
• Collections (shoes, handbags, baseball cards, coins, etc.)
• High-end decorations (custom window treatments, furniture, rugs, etc.)
• Seasonal items and decorations
• Tools and lawncare items

Create a home inventory of your personal belongings so you have proof of ownership. Take videos and photographs, and keep receipts. Once you rebuild your home, you’ll need to begin replacing your items. Think about the cost of replacing everything, starting over from scratch. A home inventory can help you itemize your belongings and estimate their value.

Understanding what’s covered

A standard homeowners insurance policy will pay to repair or rebuild your home if it is damaged or destroyed by a fire, wind, hail, lightning or another peril listed in the policy. If a hazard is listed as an exclusion, the insurance company will not pay you for damages resulting from that hazard.

Standard home policies typically don't cover damage from floods, earthquakes, landslides or sinkholes. You’ll need to buy a separate policy, like flood insurance or a “difference in conditions” (DIC) policy.

For example, if a mudslide enters your home and destroys everything on the first floor, your standard home insurance policy won’t cover any of it. Mudslides are covered under flood insurance. And if your house is near an area prone to earthquakes or landslides, you’ll probably need a separate DIC policy to customize your coverage options. On the other hand, if your home burns down because of a fire resulting from an earthquake, it might be covered under a standard policy if the root cause of the damage was the fire and not the earth movement.

That’s why determining the root cause of a large loss is critical to a claim.

Determining the extent of repairs

Assessing damage in the aftermath can be tricky. For instance, imagine a storm damages your house. The storm appears to have damaged only your garage and laundry room. But a closer inspection might reveal: 

• Your house needs new electrical wiring in those areas. 
• The city requires you to rewire the entire home (even the undamaged parts) to meet its current building code.
• Over half of your roof needs replacing because wind damaged the tiles. 
• The wind also sheared off a large chunk of your oak tree, introducing disease, and the tree must be removed.

If you suffer such a large loss, you’ll be assigned a claims manager to coordinate your claim and help you understand what’s being done and what’s required of you. They’ll assign an insurance adjuster to evaluate your claim.

The insurance adjuster your insurance company sends works for them. The adjuster inspects properties, reports their findings and estimates repair costs.

If you disagree with the insurance company’s findings, you can appeal. You also have the right to hire a public independent insurance adjuster. They work on your behalf, not the insurance company's. They will provide you with an independent inspection, report and damage estimate. Choose a reputable licensed public adjuster.

Once you and your insurance company agree on costs, you must find a contractor to complete the work. Some insurers will require you to use an approved contractor, while others will require you to obtain several bids for approval. You’ll need a reputable contractor who understands the restoration process and can work well with your insurance company.

Get a coverage review

Contact your Rathbun Insurance account manager to discuss your policy and review your insurance limits. They can help you understand what your policy covers and explain the coverage gaps. Understanding the complexities and potential loopholes in your homeowners’ insurance can help you avoid unpleasant surprises. Review your policy annually with your Rathbun Insurance account manager for peace of mind and financial security.