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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.
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