Every year, thousands of homes are destroyed by tornadoes, floods, fires, and other natural and man-made disasters.
For those affected by the recent hurricanes to the east, wildfires to the west, and everything in-between, 2019 will be a year to rebuild. So what exactly happens when your home is severely damaged or completely destroyed?
Much of it depends on:
- Your location.
- The source of the damage.
- What your insurance does (and doesn't) cover.
In the face of devastation, here are the intitial steps you need you need to take to recover and rebuild.
First steps to take following a total home loss
Of course, the well-being of you and your loved ones ranks comes first. Before taking any further actions, get to safety.
Once you've evacuated, the first thing you should do is file a claim. To do so, you need to contact the insurance company that issued your homeowner's policy. (If possible, contact your agent directly.)
When you get in touch, there are two things you need to ask for:
1. A claim number. This will allow you to track the progress of your case.
2. A copy of your policy. This will replace your original copy in case it was lost with your home.
Next, contact your loan servicer to explain your situation. Hopefully they will provide options to help you delay or reduce your mortgage payments. (This is the best-case scenario.)
If not, it will be tempting to skip your mortgage payments. After all, why should you pay for a house that is no longer livable? Well, the unfortunate truth is that failing to do so still will still likely result in:
- Late fees.
- A negative impact on your credit.
And that's the last thing you need to worry about while trying to rebuild.
How to rebuild after a total home loss
No one ever expects to experience a total home loss. And although some areas are more prone to natural disaster than others, it truly can happen to anyone.
This underscores the importance of homeowners insurance. If you opted for a policy that pays replacement costs, you're in luck.
This means your policy will pay a claim based on what the cost will be to replace the damaged property. However, this does not necessarily mean it will match the value of the property prior to being destroyed.
For example, say your home and contents are ravaged by a fire. A policy that pays replacement costs will pay for the complete replacement of your home and contents, minus the deductible and subject to a maximum dollar amount.
But what if you decide not to rebuild? Or maybe you want to rebuild in a different location?
If you decide not to rebuild, you will have to use part of your insurance settlement to pay the remaining mortgage balance. How much you receive beyond that will depend on the state you live in and your policy.
Many homeowners' policies only pay the cash value of your property at the time of loss if you decide not to replace it or choose to rebuild in a different location.
However, there are several states that have a Valued Policy Law. This requires insurance companies to pay the full policy value in the event of total loss. In these states, you would receive full replacement costs even if you decide not to rebuild. These laws exist in 20 states, including:
Don't live in one of these 20 states? Check the terms of your policy to learn what will happen to your payout if you choose not to rebuild in the same location (or at all.)
How to replace lost possessions after a total home loss
Whether or not you rebuild, your home insurance policy will cover the loss of your belongings, such as:
- Other valuable items.
If your policy covers replacement costs, then you’ll receive an amount based on what it costs to buy brand new comparable items. If not, you will receive the market value of those items at the time of their loss.
You will need an estimate of the value of your possessions and the cost to replace them. The insurance company will enlist an adjustor to provide estimates. But because they work for the insurer, they may undervalue your belongings. That's why you may want to consider hiring an independent adjustor.
Most homeowners' policies pay for temporary housing and living expenses if you’re displaced by a covered event.
What events do standard policies cover?
Unfortunately, standard homeowner's insurance does not cover certain natural and man-made disasters. Standard policies usually do not cover total home losses caused by:
- Mudslides and landslides.
- Sinkholes and other ground movements.
- War and nuclear accidents.
If you live in a high-risk region, you should purchase a separate policy that covers those specific events.
For many, this past year was marred by natural disasters --- both in the U.S. and around the globe. Although you alone cannot prevent Mother Nature's force, you can prepare for the worst it has to offer with homeowner's insurance and more.
In doing so, it's important to know:
- How much coverage your location requires.
- How to replace lost possessions.
- How to rebuild your home.
Yet above all, remember that the physical safety and well-being of you and your loved ones always comes first.