How to Make the Most of an Underinsured Loss

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7. Critically Analyze the Necessity of Restoration

Immediately after a loss, the most common reaction is to make every effort to commence repairs. Restoration contractors can be a valuable resource in mitigating losses. However, most insurance repair work, whether to buildings or to personal property, is very expensive. There are significant costs involved in such things as expediting repairs, dry out, covering, protecting, moving and storing, etc.

It may be a better business decision, for example, to dispose of otherwise salvageable equipment and replace it. It is also an opportune time to look at the necessity of various pieces of equipment. The restoration contractor’s job is simply to come in and attempt to save everything—despite the fact that some items may not be worth saving. Rather than rushing to put everything back just as it was, take the time to analyze where to spend the limited resources available.

For example, policyholders may be able to replace equipment with less expensive items that can still handle the load, or to downsize the operation by making better use of space with more efficient equipment. Since the restoration companies will not know which items are most critical to the insured, they may exhaust all of the insurance money on non-critical repairs and have nothing left for the critical ones.

In an underinsured situation, the policyholder should not sign an all-encompassing work authorization for a restoration contractor until they take the time to determine what specific items they want cleaned and repaired and then hire the contractor for very specific restoration services.

8. Negotiate with Everyone

Generally speaking, vendors to the insurance industry (e.g., building and contents restoration companies, etc.) negotiate prices with the insurance company, not with the insured. If there is ample insurance, then the insured is not impacted by the cost of these repairs. Yet in an underinsured situation, it is particularly important to understand that insureds can and should negotiate with vendors to stretch their limited funds as far as possible. The insured should notify the vendors that they are underinsured and work will be awarded based on the most competitive bid. If possible, it is best to first obtain a cash settlement, then negotiate for the various services needed.

9. Investigate Tax Relief and Government Benefits

In the event of major disasters, such as flood, wildfire, tornado or hurricane, the government may provide loans or grants to offset some of the losses incurred by those living in the area. The Federal Emergency Management Agency (FEMA) website, www.fema.gov, contains valuable information on potential funding sources.

It is also useful to know that, to the extent the loss is underinsured, the insuredmay be able to declare a loss and receive some tax relief. This is very complicated and it is a good idea to get professional guidance when pursuing this avenue. The Internal Revenue Service website, www.irs.gov, is an excellent source of general information; however, due to the ever-changing and extremely complicated tax code, the best course of action is to consult with a competent CPA or tax attorney.

10. Investigate Legal Options

This item is listed last because litigation is the most timely and costly method of recovering money. Hopefully, after looking into the first nine options, the underinsured loss will be sufficiently minimized so that this route becomes unnecessary. However, this does not mean that an insured should wait until all other methods and options are exhausted.

Lawsuits have critical time and evidentiary requirements that must be satisfied; otherwise the insured can lose their rights. Lawsuits must be...


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