Our agents at Insurance For Texans answer a multitude of questions related to claims. As an independent insurance agency that just so happens to be local and offering home insurance to Grapevine home owners, we get to quote and see a lot of policies.
We are asked a lot about dwelling amount. A lot rides on this number and it shouldn't be mistaken for market value of your home.
Another thing we are asked is if the situation were to occur where a house burned to the ground or was destroyed by a tornado, could the homeowner receive the money and not have to rebuild?
In the following insurance tip, Ron tackles what happens if you don't rebuild and how that could prove detrimental when trying to sell your home.
The short answer, "yes". You can do as the Steve Miller Band said, go on take the money and run. However, beware of the consequences.
The check you receive could be a lot smaller than you were expecting.
1. You can expect payment of actual cash value, not full replacement cost. The dwelling amount appearing on the declarations page of your home insurance policy will not be the amount you receive in this case. You will receive a reduced amount if your home has aged and depreciation against construction has taken place.
2. When you receive the cash value, it is your responsibility to clear the land and clean the home site. This could add up quickly.
3. You can expect to lose the Loss of Use coverage for your living expense. Mortgage bills that are due will be your responsibility in this scenario.
4. On the subject of mortgages, your mortgage balance will need to be settled with your bank out of the proceeds you receive. The bank is basically calling your loan since there is no asset (your home) left to protect their investment. Do you see this payout not really paying off as much as you thought?
5. The time it will take to sell your blank piece of land and the actual raw value of that land will determine if you are able to sell. The location of the land often plays into this.
We hope you now have a better understanding of why that payoff amount isn't as rosy of a picture as it may seem at first. Hopefully you see rebuilding makes a lot of sense. If you rebuild (and you should, even if you end up not living in the home) you are still able to take advantage of the Loss of Use coverage. This will allow you to recoup the costs of housing you and your family when you are without your damaged home. It also pays you in time because certainly it gives you the ability to pay for living while you determine where to land for the longer term.
On top of this, you will be able to rebuild a brand new home. You won't have to pay for clearing the site. Your updated home may just be the only modern home in your existing neighborhood. This could equal a better price for your home on the market. Better yet, by reducing your mortgage balance during the time you are rebuilding, that's more money for you when the process is all said and done.
Insurance For Texans has a YouTube play list if you want to find out more about these kinds of topics.
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