Imagine being left without food, water and even clothing, and suddenly having to find shelter for weeks or months. But you have insurance, right? That, you're thinking, should solve all your problems. But does it?
As parts of the United States ignite with wildfires and other states brace for floods, disasters are a way of life. If you aren't prepared for them, and a catastrophe flares, you might not just lose all of your belongings. You could be wiped out financially.
For example, insurers expect to pay out nearly $450 million to victims of the June wildfires in Waldo Canyon and High Park, Colo., according to the Rocky Mountain Insurance Information Association. That figure makes it the most expensive fire in Colorado's history. The fire devoured about 350 homes and left residents scrambling for shelter.
Oddly enough, having home insurance doesn't necessarily mean that you'll have all of your needs met. In fact, although many of the Colorado wildfire victims needed money immediately, they were told to be patient.
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So, there's one thing you should know above all others when it comes to disasters: Don't expect a big, quick payout. Instead, checks will come in slowly, and you won't be able to rebuild your home or belongings as quickly as you may have planned. As you scramble for shelter and try to pay hotel bills, it could take three months for you to get your first check that reimburses you for out-of-pocket expenses.
Before cutting checks, insurance companies first separate the victims from the scammers, and that can take a while. After that, your reimbursement for disaster expenses may depend on how well you've done your paperwork.
How long do insurance companies take to pay out the entire claim in a disaster area?
"Insurance is highly regulated, and the time it takes to settle their claim is covered by state fair-trade practices laws," said Carole Walker, executive director of the Rocky Mountain Insurance Information Association. "Most people receive money immediately but continue to incur expenses, so final payments can continue for one to two years depending on how long they are out of their home and the limits of the coverage they purchased."
In storm-ravaged Florida, for example, a company has 90 days to pay or deny a claim or a portion of the claim unless the failure is caused by factors beyond the insurance company's control, according to Robin Smith Westcott, a consumer advocate with the Florida Office of the Insurance Consumer Advocate.
Meanwhile, disaster victims must keep detailed receipts to document extra money they have spent on utilities, laundry and rent. In order for food expenses to be covered, they must prove that they're spending more on food than they normally would have, had the disaster not occurred.
The claim checks will slowly arrive in three parts: the initial rebuild settlement, a settlement to replace belongings, and a settlement for out-of-pocket relocation living expenses. How fast they arrive depends on how well you've documented your loss.
"Many insurance companies will go ahead and front some money, (but) there's no timeframe. Every company addresses things differently. ... An insurance company can require a policyholder to submit receipts first. So part of the time frame is dependent on the consumer and how quickly they submit receipts," said spokeswoman Nina Ashley with the Florida Department of Financial Services' Division of Consumer Services.
Furthermore, just because the home was destroyed doesn't mean the mortgage goes away. If there's a mortgage, the lender is considered a co-beneficiary. That means, when the check arrives, it is made out to both the insurance policy holder and the lender, and you must agree on how the money is spent. Then, the actual rebuilding can drag out longer, depending on permits and your contractor's availability.
There are things you can do now to make sure checks come as quickly as possible in the event of a catastrophe.
1. Start a file with an up-to-date inventory list that includes receipts, model numbers and serial numbers and when purchases were made. "This is possibly the single most important thing a policyholder can do for a smooth claim process on personal contents," said Smith Westcott. Consider storing it online, perhaps in Google documents, so that it is easily accessible.
2. Have cash and credit cards with available limits on hand, with enough for three months. So, if it would cost you $4,000 to pay bills for a month and put your family up in a hotel, multiply that by three and set that figure aside.
3. Maintain detailed records of communication with your adjuster and insurance company. After a disaster, insurance companies may be inundated with claims, said Smith Westcott. They may hire independent or emergency adjusters to help them keep up with the. If the insurance company provides detailed updates on the progress of your claim, let the process continue. If your adjuster or insurance company does not respond or cannot provide satisfactory information regarding the status of your claim, contact your state's insurance department for assistance.
The Investing Answer: In addition to keeping receipts and model numbers of the items in your home, take photos and perhaps even videos of the rooms, appliances, and valuables in your house, so you can remember exactly what you've lost when it comes time to recover. Consider keeping important documents (such as deeds) in a suitcase that you can grab as you're evacuating.