The agents at Insurance For Texans field a lot of questions regarding claims as a local Independent Insurance Agency that specializes in Burleson Home Insurance. When we discuss quotes and policies, the first number that is presented is the dwelling amount since so much of the policy is dependent up on that number. Many homeowners question how high the number is compared to their market value. When they do, they often want to know if they can just take that money if the house burns down or is destroyed by a tornado without rebuilding. In today's home insurance tip, Ron addresses what happens if you don't rebuild and why it may be best to go ahead with that rebuilding process to sell for maximum value.
The answer to the question of can you take the money is yes! But you have to consider some consequences of making that choice. You will get a check, but it includes many factors that may make that check seem a lot smaller than you might expect.
- You will be paid actual cash value rather the "full replacement cost" that appears on the dwelling amount line item on your policy. That means if your home has aged, and depreciation against construction has occurred, you will receive a reduced amount of money.
- Once you get that cash value, you will be responsible for clearing the land and cleaning up the site. There is generally a large cost associated here.
- You will lose access to the Loss of Use coverage that will cover your living expenses. You will still be on the hook for paying mortgage bills due while also living some place. This will potentially eat into your amount of money.
- Speaking of mortgages, you will be forced to settle the mortgage balance with your bank out of the proceeds. Since your property secures the home, the bank will want the entirety of the amount due because the asset no longer exists. Which again will reduce the amount of money you receive.
- Finally, selling a blank piece of land can some times be problematic depending upon location. Time and raw value are factors in that process.
Now that you have a picture of why the money is reduced, let's look at why rebuilding can make a ton of sense. When you go through the rebuilding process, even if you never intend to live in the home, you retain access to the Loss of Use coverage in item number 3 above. This will allow you to recoup the costs of living some place while you are without a home first and foremost. It will also allow you to time to determine where you want to land once everything is done.
Beyond that, we get into the mechanics of building and selling a brand new home. You won't be responsible for the clearing of the debris and site prep. You will be able to put a modern home in a neighborhood that may not have any. This can increase the price of what you can command for the property. You will have more equity from your mortgage balance since you've reduced the amount due over the time of rebuilding. All of this adds up to more money in your pocket once the process is done.
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