Into the fire

Before my house burned and my family lost nearly everything we owned, I didn’t give my home insurance policy much thought.

I knew we had one, but I didn’t pay attention to what it covered. I mean, what are the chances of that happening?

Two Web sites with information on buying homeowner’s insurance: * Washington State Office of the Insurance Commissioner: www.insurance.wa. gov. * The Washington Insurance Council, a nonprofit consumer education association: www.wiconline.org.

Well, it happened in March. I was home with my two toddlers when I noticed smoke billowing out from under the eaves near the chimney of our north Everett home.

I picked up my sleeping children and escaped the house safely.

Within minutes, firefighters arrived. The flames spread rapidly through the inside of the walls, charring the roof and eating through everything in its path upstairs.

We watched and waited at a neighbor’s house while firefighters broke windows with axes and chained-sawed holes in walls and ceilings, chasing the fire. They chucked toys, clothes, bedding and debris out a second-story window. Flames shot out of the roof, leaving a gaping hole where my bedroom and office used to be.

Investigators later determined that faulty installation around a stovepipe caused the fire.

When the firefighters finished their work, what wasn’t melted by the fire was ruined by smoke or water damage. The top story looked like a charred hull. Walls in the bottom story were so saturated with water they bulged.

We were awed by the speed our life could be so devastatingly altered. It would take months to piece back together our lives.

Before that moment of crisis hits, it seems simple: You have a homeowner’s insurance policy, you’re covered.

But it’s not that easy. Homeowner’s insurance doesn’t always cover everything inside a home, and sometimes coverage doesn’t keep pace with inflation.

For most people, insurance is a mystery: Homeowners know they need it, but they don’t understand what’s covered and how much it costs, said Claudia McClain, owner of McClain Insurance Services in Everett.

Consequently, consumers pay too much for coverage they don’t need, or they may not have enough of the right coverage, she said.

The typical home insurance plan covers the house, garage and any other structures on the property, and personal property inside against a “covered peril,” according to the Washington Insurance Council.

A covered peril is an accidental event or theft that causes damage or loss. The most common are theft, wind, fire and water damage, said McClain. Landslides, earthquakes and floods aren’t covered; separate coverage must be purchased for those hazards.

Insurance should adequately cover the cost to rebuild a home, not just the home’s market value, which can be considerably less. Consumers are often confused about this point, she said; you want your policy to cover the replacement cost, not just the cash value.

My home’s assessed value at the time of the fire, excluding property, was $70,000. Even though much of the first floor of the house remained intact, it would cost more than $100,000 to repair – much more than the assessed value.

Part of the reason for the discrepancy is the extra costs associated with rebuilding a house. It’s essentially like building a custom home, McClain said. There also is the cost of debris removal and cleanup, which can get costly if there is lead-based paint or asbestos present.

It can be difficult to find a contractor willing to give the necessary time and attention to a single project.

Sometimes coverage doesn’t keep pace with inflation, McClain said.

A study by Marshall and Swift, a company that performs valuations for the real estate and insurance industries, found that two-thirds of homes in California didn’t have enough coverage, and some of those were undervalued by as much as 27 percent.

Insurance companies account for inflation every year, but if the initial evaluation of a home is off, that small error can grow over time.

“You think you have enough coverage because you’ve had this policy for years, and all of the sudden the rebuilding costs have skyrocketed,” she said.

She suggested checking back with your insurance agent every five years for a quick review of the policy.

Also, it’s imperative for homeowners to let their agents know when they’ve completed a major home-improvement project. With the home-improvement craze, people are pouring thousands into upgrades such as granite countertops, high-end wood cabinets and tile floors.

“While it may be the exact same square footage on that house, the cost to rebuild can be significantly changed by ongoing remodeling,” she said.

A good rule of thumb is to add coverage when a project would cost more than $5,000 to repair. If you’ve added a room or deck, it’s helpful to give the agent the square footage.

Good insurance agents will tailor a homeowner’s policy to fit the client. There are many special circumstances that aren’t covered by a policy. For instance, home businesses such as day care centers aren’t covered. Neither is that custom car or boat stored in the garage. Jewelry, silverware, guns, fine art and cash all have limits on the amount that will be reimbursed.

Liability also comes with the average policy, which protects homeowners if someone is injured on their property or as a result of the homeowner’s unintentional actions elsewhere.

McClain recommended buying the maximum amount of liability insurance available, usually $500,000 of coverage.

“While liability claims are not very frequent, when they happen, they can be very serious,” she warned.

It’s a good idea to inventory everything you own in the home and in other buildings on the property, McClain said. If listing each item is too daunting, use a camera to document what you own. Open closets and cabinets and shoot pictures of what’s inside. Then make a copy of those photographs or list and store a copy off-site.

The typical policy reimburses homeowners for the replacement value of only those items they replace.

The claims agent handed us a stack of forms and told us to list every possession damaged in the fire. It was difficult to remember everything we owned, particularly during a time when we were under stress.

We received a check for the depreciated value of our belongings. We then had to replace every item we lost and submit receipts to be fully reimbursed.

Home insurance policies typically pay homeowners to rent comparable housing if they aren’t able to use their home. Our insurance company helped find us a house to rent nearby and provided rented furniture and housewares while our home was being repaired.

Even though we knew little about our homeowner’s policy, we were fortunate enough to have the coverage we needed. We’re now back in our home, and life has returned to normal.

“The one thing to know about major losses is that it is an insurance company’s time to be a hero,” McClain said. “Very seldom will I find an insurance company that doesn’t step up and do the right thing to get the family whole again.”