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Lesson From The Bastrop (Central Texas) Fires: Make Sure You Have Enough Insurance

Yesterday’s Austin American Statesman featured the tragic story of Carmen and Javier Chaparro, recent victims of the Bastrop County fires.  The Chaparros seem like great people.  Javier is a professional musician, and Carmen is a teacher who works with special-needs kids.  But sadly, after the fire, the Chaparros discovered that they didn’t have enough insurance to cover the losses of Javier’s cherished $50,000 violin or other instruments and his recording equipment.

While that’s a hard lesson to learn, the Chaparros are in good company.  For years, we have represented people in insurance claims (including my just finishing up a large lawsuit against Safeco stemming from a fire at my client’s home), and I would estimate that at least 75% of those clients don’t have enough insurance to fully cover their losses in the event of a tragedy.

With homeowner’s insurance, you are buying two types of coverage.  The first coverage, dwelling coverage, covers the cost to repair or rebuild your home, depending on the extent of the damage.  The second coverage, contents coverage, covers the cost to replace the contents of your home — your personal belongings that are destroyed.  Most people have both of these coverages too low.

For dwelling coverage, the fact is that it’s just expensive to build in the Central Texas areas, and most people don’t have an idea of what it would cost to rebuild their home.  Insurance companies have formulas they use to estimate those costs, but often those estimates are wildly inaccurate. 

My family is a perfect example of that.  Five years ago we did a fairly extensive remodel of our home.  During that process, I talked to my insurance company about increasing the limits of our dwelling coverage.  The insurance agent came back with an estimate of what it would cost to completely rebuild our house should something happen.  But the estimated cost was less than what we had spent to do a partial renovation (and that included my wife and I doing much of the finish work — painting, installing flooring, installing trim work, etc).  I knew that there was no way we could rebuild the entire house for the amount suggested.  (And our house is small — approximately 1,500 square feet after our addition — the differences will only increase with larger houses.)  Fortunately, with the help of our builder and my dad (who is in the commercial construction industry) we were able to get an amount that would help us rebuild in the event of a disaster.

But most people don’t have that luck and luxury, and they end up with too little insurance.  Do what you can to make sure you’re not in that boat.  It’s worth paying a small amount to get an opinion from a builder or someone else to make sure that your insurance is enough to rebuild your home.

The same goes for contents.  Most people are underinsured on their contents coverage because they don’t really take the time to look at everything they own.  People own a lot of “stuff” these days, and replacing all that stuff is expensive.  When you’re renewing your insurance, take the time to really look at what you own, and be honest in what it might cost to replace it.  (Also, just in case you’re in something like this, document what you have.  Take five minutes to run through the house with a video camera, and then keep the tape or disc somewhere else, like an office or another family-member’s home, so you can access it if something happens to your home. That five minutes can save you hours and potentially tens of thousands of dollars at a later time.)

Also, let me add that it’s important to know what coverage you are buying.  Several years ago, the Texas Department of Insurance required homeowner’s insurance companies to write standard policies  (generally, 95% of the policies were called HO-B policies).  Because the policies were standard, a homeowner could shop around from insurance company to insurance company and know that they were comparing apples to apples.  But, in a huge disservice to homeowners, the insurance department decided to allow companies to write their own policies.  Now, when the average homeowner is calling around to different agents to get quotes, it’s almost impossible to know whether you’re getting quotes on the same types of policies.  Most often, you’re not.  Now, every policy is different.  That’s why it’ so important to sit down with your insurance agent and tell them about your circumstances, and get them to explain the policy to you.  I know it’s boring  (and I do it for a living), but it’s the only way to really make sure you’re protected.

Being underinsured isn’t limited to homeowner’s insurance.  I’ve repeatedly written that people need to protect themselves in the auto insurance context by buying uninsured/underinsured motorist coverage and personal injury protection coverage when they purchase auto insurance. (You can also read another post on the need for this coverage:  San Marcos DWI wreck shows need for uninsured/underinsured motorist coverage.) 

While much of our time is spent fighting insurance companies, we do recognize that it has a place.  Please learn from the Chaparros’ (and my clients’)  experience to make sure that you are properly covered by your insurance should you need it.

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