Understanding Your Insurance Policy: Key Aspects You Need to Know
This article is a draft based on what I’ve learned through my recent experience with our workshop collapse. I’m sharing this to help others better understand their insurance policies and what to look out for. Please feel free to comment, as I’m still working on refining this information.
Insurance policies are often complicated and filled with legal jargon that many policyholders don’t fully understand until they need to file a claim. Unfortunately, misconceptions and lack of knowledge can lead to significant financial losses. Here are some of the most critical aspects of insurance policies that everyone should be aware of:
Coinsurance: A Costly Oversight
Coinsurance is a clause found in many property insurance policies that requires the policyholder to insure their property for a specific percentage of its total value—typically 80%, 90%, or even 100%. If you fail to meet this requirement, you could face penalties when filing a claim.
For example, if your building is worth $500,000 and your policy has an 80% coinsurance clause, you are required to carry at least $400,000 in coverage. If you only have $300,000 in coverage and suffer a $100,000 loss, the insurer may only pay a portion of your claim, leaving you responsible for a large share of the costs.
Replacement Cost vs. Actual Cash Value (ACV)
Replacement Cost (RC): This covers the cost to replace damaged property with new materials of similar kind and quality, without depreciation. However, policies often require you to rebuild within a set timeframe (e.g., 1 year) to receive the full RC amount. If you don’t rebuild, you may only get the ACV, which is lower.
Actual Cash Value (ACV): This covers the depreciated value of the property at the time of the loss, which is often significantly lower than the cost to replace it.
Understanding which coverage you have can make a massive difference in your payout. Many people assume they have replacement cost coverage when, in fact, they only have ACV, leading to unexpected shortfalls. For example, a $400,000 rebuild cost might only yield a $320,000 ACV payout, leaving you $80,000 short if you don’t rebuild.
Deductibles: Your Out-of-Pocket Share
A deductible is the amount you must pay out-of-pocket before the insurance company covers the rest of the claim. Deductibles can be a flat dollar amount (e.g., $2,500) or a percentage of the insured value (e.g., 2%). Higher deductibles lower your premiums but increase your costs during a claim. For example, a $400,000 loss with a $2,500 deductible means you’ll receive $397,500, assuming no other reductions like co-insurance.
Types of Claims Adjusters and Their Roles
When filing an insurance claim, different types of adjusters may be involved:
Company Adjusters (Staff Adjusters): These are employees of the insurance company and represent the insurer’s interests.
Independent Adjusters: Hired by the insurance company on a contract basis, they also work to protect the insurer’s bottom line.
Public Adjusters: These adjusters work for the policyholder (you) and advocate to get the maximum payout. Hiring a public adjuster can be beneficial, especially for large claims.
The Importance of a Well-Written Policy
One of the biggest pitfalls in insurance is that the insurance agent who writes your policy may not have any experience in construction, restoration, or loss estimation. This can result in policies that lack sufficient coverage, exclude necessary endorsements, or have unclear terms that leave the policyholder vulnerable.
It’s crucial to:
Work with an experienced agent who understands property values, construction costs, and local risks. Look for an agent with experience in your industry (e.g., farming, construction) and region—ask for references, check reviews, and ensure they recommend endorsements like ordinance coverage or equipment breakdown.
Review your policy thoroughly before purchasing.
Ask about additional coverage for code upgrades, business interruption, and loss of use.
Underinsurance and the Need for Regular Policy Reviews
Failing to update your policy can lead to underinsurance, especially as construction costs rise due to inflation or local conditions (e.g., labor shortages after a storm). Review your policy annually to adjust for property value increases, renovations, or new equipment. For example, a $350,000 building value in 2024 might be $400,000 in 2025, and not updating your coverage could trigger a co-insurance penalty, reducing your payout by $50,000 or more.
Business Interruption and Additional Coverages
If you own a business or rental property, business interruption insurance can be essential. This coverage compensates for lost income and operating expenses while repairs are being made. For homeowners, Additional Living Expenses (ALE) coverage pays for temporary housing, meals, and other costs if a covered loss forces you out of your home—check for ALE limits, typically 20-30% of your dwelling coverage. Additionally, you should consider:
Ordinance or Law Coverage: Covers costs to bring your property up to current building codes. Local codes, like those in Oswego, NY, require structures to withstand heavy snow (70+ psf) and high winds (115 mph). If your building wasn’t designed to code, an insurer might deny a claim citing ‘design defects.’ Ordinance coverage ensures you can rebuild to these standards, even if costs increase (e.g., a new roof might need to handle 100 psf, adding $50,000).
Debris Removal: Covers the cost of clearing out debris before reconstruction begins.
Water and Sewer Backup Coverage: Standard policies often exclude damage from sewer backups unless specifically added.
Equipment Breakdown Coverage: Covers high-value or business-critical items like security cameras, servers, or farm equipment, including data restoration costs.
Loss Payee and Lienholder Implications: If your property has a mortgage, a loss payee endorsement means the insurer may pay the lender directly, requiring you to coordinate with them to access funds for repairs.
Document Everything Before and After a Loss
Insurance companies require documentation to process claims, and the burden of proof is often on the policyholder. To ensure a smoother claims process:
Keep detailed records of your property’s condition with photos and videos.
Maintain an inventory of valuables, tools, and equipment.
Save receipts for upgrades, repairs, and improvements.
After a loss, keep all communications with the insurance company documented.
Duty to Mitigate Further Damage
After a loss, you’re required to take reasonable steps to prevent further damage, such as tarping a damaged roof or salvaging contents. Failing to mitigate can reduce your payout. For example, using shipping containers to store equipment after a collapse protects against theft or weather damage, and the cost may be covered under extra expense provisions.
Keeping a Communication Log and Work Log During Delays
Insurance companies can sometimes be slow to approve emergency work or salvage efforts, especially during large-scale disasters or disputes over claim amounts. For example, if your insurer delays approving a $400,000 rebuild estimate while your collapsed workshop exposes valuable equipment to theft or weather damage, you may need to act quickly to mitigate losses. Maintaining a communication log and a work log can protect your interests and ensure fair compensation.
Communication Log:
Purpose: Tracks all interactions with insurance agents, adjusters, public adjusters, contractors, and lenders to establish a timeline and hold parties accountable.
What to Record:
Date and time of each call, email, or meeting.
Names and titles of individuals contacted (e.g., “Jane Doe, Claims Adjuster”).
Summary of discussions (e.g., “Requested approval for controlled demolition on March 15, 2025; adjuster said they’d review by March 17”).
Promises or commitments made (e.g., “Insurer agreed to expedite salvage approval”).
Responses or lack thereof (e.g., “No response received by March 20”).
Format: Use a notebook, spreadsheet, or app (e.g., Evernote, Google Sheets) with columns for date, contact, summary, and follow-up actions.
Example: On March 14, 2025, you called The Gregory ABCD Agency (555-123-3045) at 10:00 AM, spoke with Agent John Smith, and requested emergency approval for shipping containers to salvage equipment. He promised a response by 5:00 PM but didn’t follow up.
Work Log:
Purpose: Document your efforts to mitigate damage, salvage items, or perform emergency repairs when the insurer delays, ensuring you can claim reimbursement for costs and labor.
What to Record:
Date and time of work performed.
Description of tasks (e.g., “Tarped roof debris to prevent water damage,” “Moved cameras to shipping container”).
Equipment used (e.g., “Rented 20-ft container for $150/day,” “Used tractor for debris removal”).
Costs incurred (e.g., “Labor: $200 for 4 hours at $50/hour,” “Fuel: $30”).
Photos or videos as evidence of work and conditions.
Any assistance from others (e.g., “Hired contractor XYZ for $500 to stabilize structure”).
Format: Use a daily logbook or spreadsheet, attaching receipts, invoices, and photos.
Example: On March 16, 2025, from 9:00 AM to 1:00 PM, you rented a shipping container ($150) and used a tractor ($30 fuel) to move equipment from the collapsed workshop, preventing further damage from an incoming storm. Photos show the salvaged items and weather conditions.
Why It Matters:
Reimbursement: Your policy may cover “extra expenses” or “debris removal” (e.g., sub-limits of $10,000-$25,000), but only if you document costs. Without a work log, you might lose out on $500-$1,000 in salvage expenses.
Dispute Leverage: A communication log proves the insurer’s delays (e.g., 5 days without approval), supporting a claim for bad faith or justifying your mitigation actions.
Mitigation Compliance: Insurers require you to mitigate damage; logs show you acted reasonably when they didn’t (e.g., your efforts to save cameras and servers).
Practical Tips:
Start logs immediately after the loss (e.g., February 20, 2025, for your workshop collapse).
Keep logs consistent and detailed—vague entries (e.g., “Worked on-site”) won’t hold up.
Share logs with a public adjuster or attorney if disputes escalate.
Submit logs with your claim to The Gregory DeMario Agency, highlighting delays (e.g., “No approval by March 20 despite repeated requests”).
Beware of Policy Exclusions and Limitations
Many policyholders assume they are covered for all types of damage, only to find out otherwise after a disaster. Some common exclusions include:
Flood Damage: Typically not covered under standard homeowners or business insurance.
Earthquakes: Requires a separate policy or endorsement.
Wear and Tear: Policies generally cover sudden and accidental damage, not gradual deterioration.
Regional Risks: Consider your area’s unique perils. In Oswego, NY, heavy snow loads (70+ psf) and high winds (115 mph) caused 26 building collapses in February 2025. Standard policies cover snow and wind, but exclusions for ‘wear and tear’ or ‘design defects’ might apply if the structure wasn’t built to code.
Navigating Disputes with Your Insurer
If you and your insurer disagree on the claim amount—say, they estimate a $180,000 rebuild cost, but your contractor bids $400,000—most policies include an appraisal clause. Each party hires an appraiser, and their agreed value (or an umpire’s decision) becomes binding. Be prepared to pay for your appraiser ($1,000-$5,000), but it can be worth it for large discrepancies.
Emotional and Practical Challenges of Claims
Filing a claim can be stressful, especially after a major loss. Be prepared for delays, disputes, and paperwork. Keep a claims journal to track all communications with the insurer, including dates, names, and promises made. Consider hiring a public adjuster to reduce the burden and advocate for a fair settlement.
Conclusion: Be Proactive, Not Reactive
Understanding your insurance policy before a disaster strikes is essential. Take the time to read and review your policy, work with knowledgeable professionals, and ensure you have adequate coverage for local risks like heavy snow or high winds. When disaster does occur, knowing how to navigate the claims process—documenting losses, mitigating damage, maintaining logs during delays, and resolving disputes—can make all the difference in securing a fair settlement. If you find yourself in a claims dispute, hiring a licensed public adjuster can be a valuable step to ensure you receive the compensation you deserve.
