Shortly before Thanksgiving, my sister’s beautiful Austin, Texas home was hit by lightning.  It was after midnight and she and her husband were sound asleep. There was a thunder and lightning storm going on, but they were asleep and only mildly aware of it.  

With no warning, the electrical outlet by the nightstand exploded into the room with bits and pieces flying everywhere. It was terrifying and they thought the house was on fire.  Stumbling in the dark, they realized the fire alarms were not going off – so the house was NOT on fire. Soon enough, they figured out what had happened and tried to go back to bed.

Everything was confirmed in the morning as they realized there was no heating and air conditioning.  Most of the appliances in the kitchen and all the computers and TVs were no longer working.  Later in the day, a neighbor with a backyard surveillance camera, was able to share a video that showed how the lightning bolt had hit the roof and raced across the roofline with sparks a-flying.  

They figured out that the electricity from the lightning had traveled to the outlet in the bedroom where it exited and exploded.  Most importantly, of course, they themselves were not harmed! But it caused a great deal of damage to their home and has resulted in many conversations that are extremely important to pass on.

While life has many unexpected events, all we can do is our best to prepare for the future. That’s what car, house and health insurance is all about.

I am not an insurance agent. This article is not about that.  It’s about understanding the risks and financial cost involved when we don’t know what our insurance does or does not cover.  I hope the true stories within my own circle will prompt you to call your insurance agent very soon to confirm that you have the coverage you need and that what you THINK you have is WHAT you actually do have.  

Confirming this important information will result in many a good night’s rest and could save you thousands upon thousands of dollars.

The Golden Question: Do You Have Replacement Cost Insurance Or Cash Value Insurance on Your Homeowner’s Insurance Policy?

Homeowner’s insurance through a reputable agent or agency is a necessary part of purchasing and owning a home.  You do your best to find a good agent. You meet with him/her and everything is friendly as you theoretically discuss potential losses, deductibles, coverage options, etc.  Much of it seems like just so much talk.  Their job is to hopefully do a good job of understanding your needs and getting an affordable price for your policy.  With their vast array of knowledge and the many questions they ask, you assume they’ve got your best interest at heart and will be protecting your home and belongings in the best way possible.

Whether it’s your first home or one that you’ve lived in for many years, it’s a complex and (let’s face it) kind of tedious and technical conversation that seems irrelevant to the thrill of moving into your home.

They’ve got you covered, right?  They are your new best friend, right? Well …. not necessarily and it won’t be THEIR fault if all of a sudden you’ve got a major claim on an unexpected loss.

Here are three stories from within my own family to make it all come to life.

Story No. 1

 Summer 2017:
  While our son, his wife and new baby daughter were visiting us in Tennessee, they got a call from their next-door neighbor in Utah.  I will never forget the look on my daughter-in law’s face, with her phone in her hand, rushing out to where the rest of us were enjoying a beautiful summer evening on the patio.

Their neighbor had called to say there was water running down the driveway from underneath their garage and also from underneath the front door of their new three-level town house.  This lovely home was barely a year old!  The carpeting in their newly finished basement hadn’t even been walked on when they left for their vacation!

They were so very far from their home and quickly called other family members to get into the house that awful night and find out what was going on. They Facetimed with us when they got to their house and we watched it all unfold. The front and back doors wouldn’t open.  The electrical garage door opener wouldn’t work to get into the house from there. They had to break through a basement window into the newly finished basement.  None of the light switches worked.  The carpeting was soaked and there was ceiling debris and dripping water everywhere. 

With a flashlight in the darkness, they crept up the stairs, expecting to find the problem in the kitchen sink area.  The kitchen was a mess with ceiling debris and dripping water from every source imaginable, but the sink and counters were fine.
(Later they found that all the drawers were filled to the top with water.)

The kitchen was not the source of the problem.

Up to the third story they crept through the soaked carpeting, where they found a geyser spewing from underneath the bathroom sink, gushing water like something from Yellowstone Park. 

They quickly turned off the water flow and went to work finding someone who would come that night and help them assess the damage.  Needless to say, no one slept very much that night.

Long story short:  It was a $100,000+ loss and took over four months to rebuild and recover, but it WAS covered by the golden ticket:  Replacement Cost Insurance. Their policy even provided payment for the four months they had to live somewhere else.

As a young, new homeowner, our son was extremely fortunate to have had an agent who sold him the “right stuff.” This is NOT always the case. Please read on.  Even the sharpest of homeowners and agents can miss or ignore this critically important part of homeownership.  They may possibly misunderstand your desire to save money on the policy and sell you Actual Cash Value Insurance.

What’s the difference? I’ll explain below.

Story No. 2.

 My Sister’s Home. The blessing is that they are perfectly safe, as the house could easily have caught on fire and burned to the ground.

There was significant structural damage to their beautiful home and contents, including loss of computers, TVs, major kitchen appliances, heating & air conditioning, etc.  Many of the walls had to be ripped open so the wiring within could be tested before repairs could be made.  This caused even more damage that had to be addressed with drywall, painting, etc.  At this time, two months later, most of the contents have been replaced, but they are still working on structural repairs in the master bedroom. Inspections on the interior beams and the fire there indicated that the electricity had jumped into the wiring of the bathroom, causing problems in the plumbing.  The chain of damage went on and on and on as they figured out how to address repairs.

It has been a very demanding experience that has allowed them to put much of life intoperspective.  As the shock wore off, my sister has often wisely said “This is a first-world problem.  Much of the world’s population doesn’t even dream of living in a home like ours with a roof, clean, dry beds and all the belongings that we think are essential for daily living. You learn to see it all from a different viewpoint with a deeper sense of gratitude for all we have.”

Next to the blessing that they are safe is the fact that they, like our son and his wife, have Replacement Cost Insurance. 

Now here’s the most important part of this article:

My sister, her husband and my son and his wife had to spend a LOT of time with their insurance agents and their assigned claims representatives.

Part of my sister’s experience has been riveting and heartbreaking conversations with her claim representative who says she often “literally cries herself to sleep ” when long-time policy holders find out they have Actual Cash Value Insurance, which  means only PENNIES ON THE DOLLAR for the contents of the home, after a fire or a flood or other disaster.  And, as the claims representative working for the insurance company, she can do nothing but pay out on the type of policy they have.

During the time she worked with my sister, she was actively looking for another job within the insurance company as these gut-wrenching cases were so frequent they creating such long-term emotional difficulties for her as she watched families facing devastating financial situations simply because they did NOT understand their insurance policy and what they were paying for, and had unknowingly paid for for many, many years.

What is the difference between Replacement Cost Insurance and Cash Value Insurance?  With REPLACEMENT VALUE the insurance company will pay to REPLACE the loss items, rather than to pay only the ACTUAL CASH VALUE of the items.

In the two stories I have shared, my sister and husband, my son and his wife have received payment for 
the exact cost to go out and buy a similar NEW oven, similar NEW computers, a similar NEW TV, similar NEW couch, etc. Not upgrades, mind you, but the cost of actually going out shopping and replacing these things.

Story No. 3:

A New Hampshire Home Fire:   Many years ago, this same sister helped neighbors sort out their home after a serious fire where they lost nearly everything. 

As my sister and her friends sorted through the sooty and dirty mess of soaking and ruined belongings, it was heartbreaking to realize that these dear friends were not going to be fully compensated.  They had been asked, as good friends, to help them go through absolutely everything to retrieve as much money as possible, even if it was for just a few dollars or less.

My sister was a personal part of this loss as she helped to document the losses so they could get as much as possible, even if it were only only pennies on the dollar since their insurance coverage was Actual Cash Value Insurance.

Years later, she still vividly remembers how sickening it was to witness this family face their devastating loss, financially, physically and emotionally.  Much of their distress could have been mitigated by having adequate financial compensation from their insurance.  

A simple phone call to confirm and understand that what we have is what we need can help us avoid the same potential disaster.

What We Need To Know: Actual Cash Value vs. Replacement Cost: Which One Will Pay Your Full Claim?

At the time a policy is purchased, some insurance agents will explain the difference, or assume they have. They may easily gloss over this important part of the coverage if they sense you want to save money since Replacement Cost Insurance costs more than Actual Cash Value Insurance.

In the long and technical conversation, it’s easy to got bored or distracted and not hear about this option, especially if  we’re trying to keep costs of the policy down. 

Plus, why would there even be anything that would short-change the consumer like this?  It’s way too easy to assume that you’ve got the “right stuff.”

After a loss is when you’ll wonder about what you bought, but by then it IS TOO LATE.

With love and interest in each of you, we urge you to go back and MAKE SURE that your homeowner insurance coverage is Replacement Cost Insurance and not Actual Cash Value Insurance. It will definitely cost a bit more, but it’s worth every penny.  Plus who can put the value on a good night’s sleep — to know that you’re prepared?

An easy example: Will you receive $50- $100 for a refrigerator that costs $1500 to replace?

A 10-year old, $1500 refrigerator may be in perfect working condition with many years of service still left in it.  With Actual Cash Value Insurance, which takes into consideration depreciation and use, it may only be worth $50-$100, if you could even sell it second-hand. 

And that is what your insurance company, with their computers and value determinations, through no fault of theirs, will pay you.

In the event of a large loss in a home with many contents, this is the difference of thousands and thousands of dollars that are either yours or forfeited because you didn’t understand how your policy worked.

As devastating as a loss can be, it’s even MORE SO when you realize that you didn’t understand your insurance policy and are NOT PROTECTED in the way you had thought. At the risk of repeating myself, in those circumstances, the insurance company can do NOTHING for you but honor what your policy covered and what you paid for, according to the terms. 

Please, please, please! Take a few minutes and call your insurance agent very soon to confirm that you have Replacement Value Insurance, and not Actual Cash Value Insurance on your home’s structure and contents. Even insurance agents can be surprised with older policies that have been in place for many years.

Many of us reading Meridian Magazine are seniors. We owe it to ourselves and our families to TRIPLE CHECK with our agents that this important element of our home ownership is in place.

In addition, if you have added structures, (such as a covered deck, shed, or detached garage) are those also included in the coverage? As costs for construction material is at a premium in these times, it may cost much more to replace than you had anticipated in the event of a fire or natural disaster.  What will your policy actually cover in the event that repairs or replacement are needed?

An additional thing to consider: While most of our belongings depreciate, you may have art pieces or valuables that have appreciated in value. That needs to be addressed with your agent as well!

THE NEXT IMPORTANT THING: Pass It On! Especially to our grown children! Our children who are buying homes for the first time (or just recently) are flooded with information and decisions to make. This part of home ownership may seem insignificant or confusing.

My sister’s daughter, the mother of two little girls, upon hearing about her parent’s situation said, “When we bought our first home, I was so excited and a new mom! What did I know or care about these things???” 

As I mentioned before and it is worth repeating: Not all insurance agents are as sharp or inclined to educate as they should be.  They may interpret your desire and need to save money by not emphasizing the difference between these two types of protection. It’s very possible (and unintentional) that they will not provide the most important information or help us ask the most important questions. In summary, with Replacement Cost Insurance, you’ll have enough money to replace your belongings and make needed repairs.  With Actual Cash Value insurance, you will NOT.  Sad, but true, if/when that happens, the problem and responsibility will lie with YOU as the policy holder, NOT the insurance company or agent.

With the full knowledge and hope that we may never experience a loss like the ones I’ve shared here, from one moment to the next we may! And that is NOT the time to find out that our coverage is insufficient due to our own lack of understanding or procrastinating to make a simple phone call. 

With love and concern for all my friends at Meridian, I hope you’ll call your insurance agent very, very soon to make sure you are protected adequately.

As a little P.S: Two simple additional things:  

1) Let’s make sure our computers and the information on them are backed up!

2) In the event of a lightning storm, it’s a quick and easy thing to unplug our televisions and computers!  We can’t do that with all our electrical contents, but that just that one thing would have made a nice difference for my sister and her husband.

Carolyn Allen is the Author of 60 Seconds to Weight Loss Success, One Minute Inspirations to Change Your Thinking, Your Weight and Your Life. She has been a columnist for Meridian Magazine since 2007. She provided mental and spiritual approaches for weight loss success and happy living both online and in the Washington, DC community since 1999 through Weight Watchers, First Class, Fairfax County Adult Education and other community groups.She and her husband, Bob, are the parents of five children and grandparents of a growing number of darling little ones. They are now happy empty nesters in Sandy, Utah.