PAG E 5 Wildfires Continued Insights for Your Industry E01-1026 PROTECTING YOUR PROPERTY When an insured dwelling is destroyed by fire, the policyholder typically has four options listed in the table below, under a “replacement cost” policy, each of them subject to the applicable building property limit and other provisions: Under options #2 and #3, the insured has to wait for payment of full recovery, which is not easy for a household experiencing prolonged distress. The more construction is delayed by post-disaster conditions, the longer it takes for affected households to tap one of their remaining assets, an insurance settlement. Also, under option #3, when rebuilding at a new location, insureds and their adjusters need to be prepared if insurance companies attempt to deduct the value of land from the determination of damage. That practice is now prohibited by law in California, but may be utilized or attempted elsewhere. According to Greenspan, many homeowners are enticed by offers from their insurers for an upfront payment of a large portion of their insured limits without having to submit a claim. Months or years later, many insureds learn the amounts they collected were not enough to make them whole for their loss. By then, the time limit for making a claim or filing suit may have passed. Even if they can still file a claim, valuable evidence and memories to document the claim may have been lost. Importance of ALE To reduce the pressure to settle for less than what they may be entitled to, homeowners and their insurance brokers and agents are urged to carefully evaluate the extent of their “loss of use” coverage, and how long it will last following a loss. While most homeowners policies provide up to 12 months of ALE coverage, Greenspan recommends that insureds acquire at least 24 months of coverage. Also, insurance for additional living expenses can provide homeowners with a buffer of time in cases where insured damage makes a residence uninhabitable, a common occurrence in wildfires. Found in the “loss of use” section of most homeowners policies, ALE coverage pays additional costs insureds incur if they are forced to find alternative shelter (e.g., a hotel room, rental property, etc.) because insured damage has made their home uninhabitable. 800.382.2468 | AdjustersInternational.com Sheila E. Salvatore, Editor | Editor@AdjustersInternational.com | 126 Business Park Drive, Bldg 2 | Utica, NY 13502 Copyright 2022 Adjusters International. All Rights Reserved. Insights for Your Industry® is published as a public service by Adjusters International, Ltd. It is provided for general information and is not intended to replace professional insurance, legal and/or financial advice for specific cases. #1 Accept payment for and Sell or abandon the and Collect nothing for the property’s ACV insured location replacement cost or Accept payment for and Repair or replace and Collect replacement #2 the property’s ACV at the same location cost balance after completion*† or Accept payment for and Buy or build and Collect replacement #3 the property’s ACV at a new location cost adjustment after completion*† or Negotiate a settle- #4 ment amount for ACV n.a. Insured’s option n.a. Included in and replacement settlement offer cost combined. *Typically includes coverage for building code upgrades. †Subject to the policy’s limitations. Four Replacement Cost Settlement Options
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