By Marc A. Cisneros Jr.
CEO and co-owner
CS Innovative Insurance
Solutions
Insuring Against Mother Nature
Offering pre-disaster insights could be the best thing you ever do for clients
Mother Nature has been in the news a lot lately. Unfortu- nately, the coverage often
has focused on her ugly side. tornados, floods, wildfires, droughts and
earthquakes have featured in news
broadcasts from coast to coast. With
hurricane season upon us and tornados ripping across the Midwest, many
homeowners are contemplating their
insurance coverage:
• do i have enough insurance?
• do i have the right insurance?
• do i have too much insurance?
Let’s consider the realities homeowners face when their residence is
destroyed by a tornado. By understanding more about insurance and
how to choose the right coverage,
mortgage originators can help their clients long after the closing papers are
signed. although this discussion focuses on tornados, many of the salient
points apply to any natural disaster.
Unlike hurricanes, which develop
in the ocean and are tracked by the
National Weather Service and others,
tornados generally strike with little to
no warning. they develop suddenly and
dissipate just as quickly. In their path,
they often leave people and property
devastated.
Insurance amount
When a tornado rips your clients from
the reality they once knew, their ability to recover will depend largely on the
type and amount of insurance they possess. It also will depend on determinations made by the insurance company,
including their dwelling amount or dwelling value. this is the amount a home is
insured for and is also called a coverage
limit, policy limit or coverage amount.
How much home insurance should
your clients carry? Ideally, they should
have enough to pay for any necessary
demolition and debris clearing in addi-
tion to rebuilding costs. In other words,
insuring a home for its market value
or sales value might not be adequate.
advise clients to speak with an insur-
ance agent and to review the replace-
ment cost of their home carefully. that
amount should include any necessary
demolition, clearing and building fees.
Homeowners also should contact their
insurance agent to recalculate their cov-
erage limits every three to five years.
they should discuss square foot-
age, construction type, flooring, wall
coverings and type of appliances in
the home. another option is to use an
online service, such as accucoverage.
com, to determine a home’s replace-
ment cost.
alternately, homeowners can pur-
chase an endorsement — called a
guaranteed-replacement-cost rider —
that protects them if it costs more to
rebuild than the amount for which they
insured their home. generally speak-
ing, these riders add 25 percent or
50 percent more coverage beyond the
dwelling value.
Homeowners also must consider
temporary accommodations as they
rebuild. they’ll need shelter, clothing,
food and other essentials.
Home-insurance policies generally
have what’s referred to as loss of use.
this phrase refers to the costs associated with the loss of a home. Often,
loss of use is calculated by multiplying
the dwelling value by 20 percent.
when it comes to determining replacement values.
Insurance companies will handle
claims based on one of two values:
1. replacement-cost value: When this
is used, the insurance company will
replace the damaged items with
same or like-new items.
2. Actual cash value: When this is
used, the insurance company will
depreciate the value of items before
paying out.
“Whatever the amount
of your clients’ insurance
coverage, one of the most-
important steps in the wake
of any loss is to contact
the insurance company.”
It’s crucial for homeowners to ask
whether replacement-cost value or actual cash value is used in their policy.
Finally, homeowners also should
know the amount of their deductible.
this is the dollar amount they must pay
before the insurance company pays
anything. In some states, insurance
companies set a separate deductible
for wind-related losses. Homeowners
also should ask about how their
monthly, semiannual or annual premium would change if they lowered or
raised their deductible.
•••
Personal items
When facing a complete loss, such as
that caused by the worst effects of a
tornado, homeowners also will need
to replace personal items such as furniture and electronics. Home insurance
will generally cover personal property
totaling in value between 40 percent
and 70 percent of the dwelling amount.
Homeowners should have a home inventory list and keep a copy of it in a
location outside their home. a home inventory can be as simple as a video recording of the inside of their house and
associated structures that captures
their belongings.
Your clients should be specific in
their home inventory. Narrating the
video with detailed information about
certain items — such as year, make,
model, size, color, serial number and
purchase price — can be a huge help
Whatever the amount of your clients’
insurance coverage, one of the most-
important steps in the wake of any loss
is to contact the insurance company.
this can be difficult when the affected
homeowners are without a phone or
home. Should your clients ever face
complete devastation, they should try
to spray-paint their address on their
property in large print and restore their
communications as soon as possible,
perhaps using a prepaid cellphone.
Marc A. Cisneros Jr. is CEO and co-owner
of CS Innovative Insurance Solutions, an
independent agency in San antonio. He
specializes in insurance programs catering
to mortgage brokers, including errors-and-omissions coverage; commercial insurance;
surety bonds; medical insurance; and home,
rental and commercial insurance for clients.
Visit www.csiis.biz or e-mail marc@csiis.biz.
