It can be a huge relief when you finally receive the payout for an insurance claim. Major home insurance claims can be complicated, stressful, and often mentally and physically draining experiences. When they are finally complete, you can start the process of repairing your home, replacing your belongings, and getting back to normal life.
Large insurance claims can be complicated, and homeowners do not typically receive a single lump sum when the claim is concluded. Instead, a home insurance claim payout may come in several parts or involve reimbursement for certain expenses. Homeowners may not have complete control over how they get to spend the money, and when the money is received.
Homeowners in the midst of filing a fire insurance claim should know how their payout breaks down and what to expect when they finally start to receive funds from their insurer.
First, fire insurance claims are typically broken down into three areas of coverage: Structure, Contents, and Additional Living Expenses. This is how the payout works for each section.
The Structure element of your insurance policy covers repairs to your home itself, i.e., rebuilding the roof, replacing damaged siding, or reconstructing your home altogether.
If you are still paying off your mortgage, your mortgage lender has a financial stake in the reconstruction of your home, and they are co-payable on your insurance claim. The insurer will list both of you on the check. The mortgage lender will then disburse funds directly to the builder hired to repair your home as work is completed. Usually, they will pay out one third at the start of construction, one third when construction is 50% complete, and the final third when an inspection verifies that repairs have been completed.
In some cases, the insurer may make the builder co-payable and send payments directly to them.
When it comes to lost and damaged belongings, the amount that you receive may depend on the type of coverage you have. There are two possibilities:
- Replacement Cost, where the insurance company will pay you the amount it costs to replace lost or damaged belongings at their current price. This will pay up to your coverage limit.
- Actual Cash Value, where the insurance company pays the depreciated value of the belonging at the time of the loss.
These types of coverage also apply to structural repairs.
Remember that your coverage limit is not what the insurance company will pay you. They will only pay up to that amount if you have sustained those losses.
Often, you will have to replace belongings and submit the receipts for the insurance company to reimburse you. In some cases, you may be able to receive a lump sump at Actual Cash Value and replace belongings as you see fit.
3. Additional Living Expenses
Expenses that you face when you do not have the use of your home are covered under Additional Living Expenses. It covers things like long or short-term rentals while your home is repaired, as well as extra food or transportation costs beyond your usual expenditure.
To be reimbursed for these expenses, you will need to provide receipts. You are largely reimbursed after the fact, but you can request a cash advance to help cover them. If you receive a cash advance, you will have to provide receipts and details of how the funds were spent, or else the advance will be deducted from other areas of the claim.