University of Missouri Extension

EMW1022, Reviewed September 2018

Financial Recovery and Risk Management

Brenda Procter
Human Environmental Sciences Extension

As you attempt to restore your life and home after a disaster, you will face many decisions. In many cases, the decisions will involve large investments. Naturally, you will want to recover as much as possible through your homeowners insurance policy. Where insurance falls short of your needs, other types of assistance may be available, especially in a place the president has declared a disaster area. Uncovered claims are tax-deductible if they exceed 10 percent of your adjusted gross income. Part of your financial recovery involves making good business decisions when contracting for repairs.

Documenting losses and claims

Whether you are filing for insurance, seeking assistance or claiming a casualty tax deduction, you will need proof of your losses. Before you start cleanup, take pictures or video of the damage. If you cannot take pictures or video, describe the situation accurately, listing the specific items that have been lost or damaged. Keep damaged materials for proof of loss until your insurance adjuster authorizes their disposal.

Items may be moved from their original location to prevent further damage to the building, but do not throw them away without insurance company approval. Protect any salvageable items to prevent further damage. Many homeowners policies will not cover subsequent water damage even if the home is destroyed. This is particularly relevant to property below ground, where rainwater may collect and pool.

Remember to document the losses in your landscape and garden. Also, document the amount of debris you will have to remove, and whether it came from your property or elsewhere. Some homeowners insurance policies cover debris removal.

Filing for insurance

These tips are offered to guide you in filing insurance claims for damage to your home and loss of personal property:

Be sure to file your insurance claim within the policy’s imposed time limit. For homeowners policies, it varies. Review the settlement steps outlined in your policy. If you’re dissatisfied with the proposed settlement offer, explain your position in writing.

The Missouri Department of Insurance can help if you feel you are being treated unfairly by your insurer. Examples of unfair treatment include the company not contacting you within 48 hours after the claim was reported and the company refusing coverage that is specified in your policy. For more information, call 800-726-7390.

Homeowners insurance
Many people are surprised about the extent of protection a homeowners insurance policy offers. Although your homeowners policy does not cover damage caused by rising floodwaters, it does offer some protection from loss caused by wind, rain, hail, snow, lightning and freezing temperatures. If you have experienced a loss or damage to property, review your policy’s provisions and contact your insurance agent to file a claim and to update your policy, if necessary, to include coverage you need for the future.

Be sure your coverage amount is at least 80 percent of the current replacement cost of your home. Otherwise, you will not be paid the full cost of replacing a partial loss. Also, many homeowners policies pay for losses to your contents,  such as furniture, appliances and clothes, on an actual cash-value basis (replacement cost minus depreciation for age or wear and tear). A better option is to buy replacement-cost coverage that pays the full cost to replace your personal property at today’s prices. Although the premium costs are a little higher, the extra protection is usually worth it.

The following items are usually covered but may vary according to the policy’s provisions and up to the dollar amounts that you purchased:

Many policyholders may be unaware of the extent of the protection offered by their homeowners insurance. If you have experienced a loss or damage to property, review your policy’s provisions and contact your insurance agent to file a claim and to update your policy, if necessary, to include the coverage needed for the future.

A standard homeowners policy does not cover cars, most recreational vehicles, watercraft, animals, birds or fish. While homeowners insurance does not cover losses from rising water, it usually does cover water damage from such things as leaking roofs, broken windows and broken pipes. Most policies do not cover sewer back up unless you purchase a sewer-backup endorsement.

If you are in a designated special flood hazard area and your structure is substantially damaged by any force — wind, water, fire — you may be required by the local permit office to meet the flood damage prevention requirements for new construction. For residential structures, this means elevation. A structure is substantially damaged when the cost of restoring the structure to its predamage condition is 50 percent or more of its predamage market value.

Owners of structures in special flood hazard areas can partially insure themselves for the added expense of elevating a wind- or fire-damaged structure before repairs by purchasing a Code Compliance endorsement on their homeowners policy.

Flood insurance
Losses caused by rising floodwater are not covered under most homeowners insurance policies. If you have purchased coverage through the National Flood Insurance Program at least 30 days before being affected by a flood, you will be protected against property damage caused by such flooding. You also may be partially reimbursed for steps you take to prevent flood damage, even if the flood never reaches your building.

Flood insurance policies written or renewed on or after June 1, 1997, include an endorsement called Increased Cost of Compliance (ICC). This coverage will pay up to $15,000 for elevating or relocating an insured dwelling so that it is above the flood-protection elevation required for new construction. For nonresidential structures, flood damage prevention using other methods also may be covered. The coverage may be used toward the cost of demolishing the flood-prone structure and building a new structure at the required elevation.

ICC coverage is available only for structures that have been substantially damaged by a current flood event for which a damage claim is being filed. In communities with cumulative substantial damage ordinances, the eligibility requirements for this coverage are less stringent.

The flood insurance adjuster may submit a damage assessment form to the flood insurance program indicating that substantial damage is suspected. However, final responsibility for determining whether a structure has been substantially damaged rests with the community. In most Missouri communities, the determination will be made by or through the floodplain administrator, who is usually the building or permit official.

Credit and other sources of relief

Victims of natural hazards whose losses exceed their insurance coverage may obtain loans or other financial assistance.

Federal disaster assistance

If an event is declared a major disaster by the president, numerous additional sources of federal assistance will become available. The Federal Emergency Management Agency (FEMA) will set up a disaster registration hotline and will usually work with the Missouri State Emergency Management Agency to establish local disaster recovery centers. The hotline and recovery centers will be sources of access to the various federal assistance programs.

In addition to the SBA loans mentioned in the Credit and other sources of relief section above, these types of assistance usually are available:

Housing rehabilitation assistance for low- and moderate-income households also may be available in some communities through the U.S. Department of Housing and Urban Development (HUD) programs administered by local and state agencies.

Recipients of federal assistance for flood damage are required to purchase and maintain flood insurance on their property. Owners of that property may not receive federal assistance in future floods unless the property is protected by flood insurance during those future floods.

Contracting for repairs and rebuilding

Selecting a contractor
As you attempt to restore your life and home after a storm, you may find only a few local companies and individuals that perform the necessary services, and they are likely to be very busy. Depending on the damage, you may want to make temporary repairs and wait for local contractors who will be there to guarantee their work long after the storm is over. If the repairs cannot wait, however, take care to ensure you receive good quality work or major deterioration may appear later.

After a disaster, out-of-town contractors and companies will enter the area to offer their services. Some are honest and will do an adequate job, but take precautions when working with outside contractors.

Contract essentials
A contract is the offer and acceptance (agreement) to do specific things in a specific manner. State clearly, simply and completely all that is to be done. If beginning and finishing dates are involved, state them in the body of the contract. A home rebuilding contract should also state that materials and procedures used will follow the minimum standards of the current building code.

Keep a copy of the signed contract and all change orders.

Withhold full payment until:

Buyer beware

Adapted from Financial Recovery and Risk Management, LSU AgCenter.
Special thanks to Calvin Call, executive director of the Missouri Insurance Coalition, who reviewed this publication.
EMW1022 Financial Recovery and Risk Management | University of Missouri Extension

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