Completing a fire insurance claim is not an easy process. It can involve months of paperwork, inspections, estimates, and even Examinations Under Oath. When the process is finally complete, you may want to breathe a sigh of relief and get to the business of repairing your home and getting life back on track.
Unfortunately, you may not be quite done yet. The way the money is paid out can be a bit more complicated, and you may not get it all at once.
First of all, there are three main coverage areas. Each has its own coverage limits, and you may be paid separately for each area and in different ways.
Structure
A large sum of your settlement will likely go to home repairs or rebuilding your home from the ground up. However, there is a good chance you may not see any of the funds. As explained further below, mortgage lenders are often named co-payable on your insurance cheque. Often, the mortgage lender or the insurance company will send the funds for repairing your home directly to the insurance company’s preferred contractor.
In cases where the homeowner wants to hire their own contractor, they may choose to accept a home insurance payout instead of repair their property. This may be impossible if there is still a mortgage on the property.
Contents
The insurance company may want to see receipts for the replacement belongings before they reimburse the policyholder. In some cases, you may not want to repurchase all of the same belongings that were lost. For example, you want to upgrade from a sofa to a sectional or get a state-of-the-art desktop computer.
Unfortunately, you may not be paid as much if you do this. You may be able to negotiate a lump sum payment, but this may be based on the actual cash value of lost belongings rather than the replacement cost. It can mean fewer total funds, but you have more control over what you purchase.
Additional Living Expenses
These expenses, which typically include hotel costs, rental costs, transportation, and storage, are usually reimbursed by the insurance company after you incur them. They may provide a lump sum later on or sometimes provide funds through several stages, as rebuilding your home can take months or even years. If the insurance company provides you with an advance of funds to help you get going, you will need to submit receipts to show how this money was spent. For example, invoices from a hotel, restaurant receipts, etc., will have to be kept and submitted to the insurance company.
Why Are Other People Named on the Payment Cheque?
Unless you have already paid off your mortgage, it is very likely that your mortgage lender is co-payable on any fire insurance claims you make. They have a vested interest in your home being rebuilt, and if they are co-payable, they are entitled to the funds.
In some cases, a mortgage lender may take the payment and close your mortgage rather than release it for repairs. In these cases, you may want to look at getting a construction loan, as you will still own the property, but avoiding this situation will make things easier.
More recently, some insurers have been expediting the process by making the preferred contractor co-payable on the cheque for structural repairs.
Settling your insurance claim is a major relief, but the process may not be over quite yet. There are still payments to get through, and it helps to know how they are likely to be sent out.
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