I’m just morbid enough to want to know the answer. And no, the question didn’t come out of nowhere. Last year my house was hit by lightening twice. Yep, twice. Thankfully, all we had to do was replace some appliances, but it could have been worse. And I’m the kind of guy who likes to be prepared, so I called up my buddy Todd Curry of the Curry Agency for some answers.
My question to Todd is this, what happens when you are standing in your front lawn watching the fire department attempt to save your burning house? His answer is simple, call your agent. It’s your agent’s job to be there for you when catastrophe strikes. In that moment your agent will be there to support you emotionally and to iron out the logistics.
If your home is completely destroyed and unlivable, your homeowner’s policy has a ‘loss of use or additional living expense’ policy which allows you to maintain your standard of living while dealing with this loss. Which means if you are used to living in a McMansion, your insurance will cover you renting something comparable in the interim. This policy will also cover laundry service, meals, etc. The key to getting the most out of this policy though is to keep detailed records and receipts of your expenditures.
So that takes care of your immediate needs, but what happens with your mortgage? Let’s say you have a home valued at $300,000 with a mortgage of $150,000. This is covered under your dwelling coverage policy. When you first purchased homeowner’s insurance your home was valued at a certain amount, this amount is the replacement value of your home. There are a couple of caveats to this policy, but what’s important to know is that the bank gets paid first. What’s left goes to you. This is what you use to rebuild your home or to buy something new. Some policies even include covering closing costs or an allowance for a monthly stipend to cover an increase in interest rate.
All of this coverage and we still haven’t gotten to how you replace all of your stuff. Personal property coverage is what will help you pay for a new couch, kitchen appliances, and shoes. You gotta have shoes. So how does personal property coverage work? It’s usually a percentage of your dwelling amount. If your home is valued at $300,000 and you have 50% personal property coverage you’ll get $150,000 to replace everything. Your policy may also be broken out into replacement cost or cash value. Replacement cost means if you bought your couch for $1,000 10 years ago you’ll still get $1,000 to replace it today. Cash value means you’ll only get 100 bucks because that’s all your 10 year old couch is worth today. Your best bet for the smoothest possible transition after a disaster is to have a comprehensive inventory of all your belongings. You can hire a company to do this for you or you can do it yourself. Either way, once documented, the information needs to be held in a safe location somewhere other than your own home.
While all this is good information none of it matters if you don’t investigate your own policy. Understanding what coverage you have, and what you can expect in the event of the unthinkable, is invaluable. Take this as a nudge to call your agent today. Increasing your coverage to where you feel comfortable may cause you to spend a little more per month, but knowing you’ll be taken care of in a tough situation is probably worth it. That’s for you and your agent to decide.
I recorded my conversation with Todd for The Pete the Planner Radio Show on WIBC last week, you can check it out here:
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.
Insurance is a rip off. The bank gets paid first??? Replacement should mean just that ,regardless of price of the object.
But even if you were paid first, you still owe the bank the money.
But you would have the whole funds to replace your home, then continue on paying your mortgage as you had done before you lost your home
What stops someone from taking all the proceeds and just buying whatever they want and never repaying their mortgage though? There would be a lot more insurance fraud going on and people burning down their houses if the insurance companies didn’t pay the creditor first.
What happens if our home ( located in a wooded forested area that has had wildfires in the vicinity recently, is burned in a wildfire and we do not want to re-build on the site? We own our home…no mortgage. We have state farm insurance.
Yes, but, isn’the the bank is losing out on fire damage also… the moment they heard fire damage, complete loss, they pushed my valuable homestead property of 15yrs into foreclosure when they had been working with us for well over a year with payments. The assessed value was 178k and is now 78k with no structures; when they got the checks that were short of the mortgage, they held them after saying they would apply them immediately to our mortgage…. but as suspected they held them and insisted on it being payed off completely. This bank has had us in an interest only loan for years and has made it impossible with their conduct to use anyone else… (( also a complicated property to lend on; small town, very few comps. We took half of the personal property insurance, and paid off the rest. That is 100k above the assessed value… when in foreclosure could have been sold for much less… and they would have. It is irony or something is very suspicious about this situation… after being a professional realtor in the area of homestead, I lean the weight in that direction. What could you do… not everyone experiences complete loss from a home fire.. ignorance is nucence.
omg same gurl 🙂 TWINSIES
Helene,
My home recently burned and it was paid for, but under insured. I had enough to cover what I thought the house was worth, but not to rebuild it like it was. My insurance allowed to take the money and still sell the house as is. They are still putting me in a rental home for 9 months. We choose to buy some land and move to the country!
Would you be willing to tell us what you were able to sell your “as is” home for? We are in a similar situation and have no idea what to ask.
Of COURSE the bank is paid first – It was that mortgage that allowed you to be in that home in the first place!! Insurance pays off the mortgage – then you get a new mortgage and combined with the proceeds after mortgage payout you can buy a new home or build a new on on the same land.
We did not burn our house down I lost my baby dog in the burning fire I want her back
You should also contact the Property Tax Assessors office and ask for an adjustment on the value of the home. Why pay taxes for ashes?
No one said you did
We lost our home due to b fire last August. A total loss the insurance company National Lloyds treated us Like criminals. It was horrable watched ng for 45 minutes waiting on a the country fire department. I called 3 times begging them to hurry that we were going to lose everything which we did. They tried to make us say maybe we accidently left a candle burning. We awoke at 3:30am with the house burning and we almost didn’t make it out we had to rent a run down house that had roaches. We were covered for rental help clothing food but they haven’t given us a dime to help us we were covered for everything. I’m at a loss for words to call them. What should we do if I call them they are rude. WE ARE THR ONES THAT LOST EVERYTHING EVEN MY HUSBANDS FALSE TEETH. Should we seek legal help
F yeah seek legal aid!!!! Definetly!! & when you sue your insurance company, they CAN NOT drop you, nor significantly raise your premiums. Do it. I did. Well worth it. I would’ve gotten screwed without an attorney. Get one that specializes in insurance claims/real estate. DO IT. You won’t be sorry, unless you handle it yourself.
Our insurance company does not pay off our mortgage does that seem fair is this normal the company is Union mutual
There was recently a fire in our house. We have homeowners insurance, but because the house was refinanced it is in the bank’s name. Are we going to get any of that money? The bank is making it seem like we won’t.
Then there’s the question…if the bank gets paid first, if you choose to rebuild will you have to refinance (most likely at a higher interest rate)…so who wins??? Looks like the bank….somehow it looks as though this is not in the best interest of the homeowner…
We lost our house in a fire almost a year ago. We decided to rebuild, however I am still questioning that decision as this whole process has been the worst. Our insurance company did not pay off the mortgage, however they issued checks to me and the mortgage company, which I had to endorse and send in. The mortgage company is holding the funds hostage in an escrow account and sending disbursements when requested, and when all hoops are jumped through (they come up with new ones each time). Because in their delay with funds, the project is way behind and the builder has walked away from the project, leaving completion up to us, but creating more hoops to jump through. We lost everything, and I just want to go home. I’ve continued to pay the mortgage payments, I’m interested to see how it all plays out in the end as the new house will be worth much more than what is owed. In the meantime I wait for the next disbursement while the bank gets to collect interest on the money in escrow, and continue to collect my mortgage payment each month.
What can homeowners do to cover the cost difference to rebuild the home due to a house fire resulting in totaled loss? What are the options available to get adequate financing to cover that difference not coverrd by insurance? if you didn’t buy enough coverage for replacement of the dwelling, where is that the amount coming from if the homeowners’ have to come up with money they don’t have from their pockets?