How does the payment process work?
An adjuster will inspect the damage to your home and offer you
a certain sum of money for repairs. The first check you get from
your insurance company is often an advance against the total settlement
amount. It is not the final payment.
If you're offered an on-the-spot settlement, you can accept the
check right away. Later on, if you find other damage, you can "reopen"
the claim and file for an additional amount. Most policies require
claims to be filed within one year from the date of disaster. Check
with your state department of insurance.
When both the structure of your home and personal belongings are
damaged, you generally receive two separate checks from your insurance
company, one for each category of damage. You should also receive
a separate check for additional living expenses that you incur while
your home is being renovated.
- Structure.
If you have a mortgage on your house, the check for repairs will
generally be made out to both you and the mortgage lender. As
a condition of granting a mortgage, lenders usually require that
they are named in the homeowner’s policy and that they are a party
to any insurance payments related to the structure.
The lender gets equal rights to the insurance check to ensure
that the necessary repairs are made to the property in which it
has a significant financial interest. This means that the mortgage
company or bank will have to endorse the check. Lenders generally
put the money in an escrow account and pay for the repairs as
the work is completed. You should show the mortgage lender your
contractor's bid and let the lender know how much the contractor
wants up front to start the job. Your mortgage company may want
to inspect the finished job before releasing the funds for payment
to the contractor.
Some construction firms require you to sign a form that allows
your insurance company to pay the firm directly. Make certain
that you're completely satisfied with the repair work and that
the job has been completed before you let the insurance company
make the final payment. Remember, you won't receive a check for
the repair job. The construction firm will bill your insurance
company directly and attach the "direction to pay" form you signed.
Bank regulators have guidelines for lenders to follow after a
major disaster. If you have any questions contact your state banking
department.
- Personal belongings.
The first step is to add up the cost of everything inside your
home that has been damaged in the disaster. Now is the time to
review your personal inventory, to help you remember the things
you may have lost. If you don’t have an inventory, look for photographs
or videotapes that picture the damaged areas. For expensive items,
you may also contact your bank or credit card company for proof
of purchase. When making your list, don’t forget items that may
be damaged in out of the way places such as the attic or tops
of closets.
If you have a replacement cost policy, you will be reimbursed
for the cost of buying new items. An actual cash value policy
will reimburse you for the cost of the items minus depreciation.
Regardless of which type of policy you have, the first check will
be calculated on a cash value basis. Most insurance companies
will require you to purchase the damaged item before they will
reimburse you for its full replacement cost.
If you have financed your home, your bank may have received a
check for both repairs to your home and your possessions. If you
don't get a separate check from your insurance company for your
belongings, ask the lender to send the money to you immediately.
If you have a replacement cost policy, you may be required to
buy replacements for items damaged before your insurance company
will compensate you. Make sure to keep receipts as proof of purchase.
If you decide not to replace some items, in most cases you’ll
be paid the depreciated or actual cash value of the items that
were damaged. You don't have to decide what to do immediately.
Your insurance company will generally allow you several months
from the date of the cash value payment to replace the item. Ask
your agent how many months you are allowed before you must replace
your personal possessions. Some insurance companies supply lists
of vendors that can help replace your property.
- Additional living expenses.
Your check for additional living expenses should be made out to
you and not your lender. This money has nothing to do with repairs
to your home and you may have difficulty depositing or cashing
the check if you can't get the mortgage lender's signature. This
money is designed to cover your expenses for hotels, car rentals
and other expenses you may incur while your home is being fixed.
- Options for rebuilding.
If your home has been destroyed, you have several options:
- Rebuild your home on the same site.
The amount of money you’ll have to rebuild your home depends
on both the type of policy you bought and the dollar limit
specified on the first “declarations” page of your policy.
Generally, you are entitled to the replacement cost of your
former home, providing that you spend that amount of money
on the home you rebuild. Remember, your insurance policy will
pay to rebuild your home as it was before the disaster. It
won’t pay to build a bigger or more expensive house. A similar
rule applies to repairs.
- Decide not to rebuild or to rebuild in a different location.
The amount you’ll get from your insurer will be determined
by your policy, state law, and what the courts have ruled
on this matter. If you decide not to rebuild, review your
policy and ask your insurance agent or company representative
what the settlement amount will be.
With Permission © Insurance
Information Institute, Inc. - ALL RIGHTS RESERVED -
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