My father lost his home in a fire. The house was insured for $350k, and there was a Functional Endorsement Limit increase of 125%.
The adjuster told him in an email, “if you rebuild or replace with a new home exceeding the $350k, you can claim the additional coverage up to $455k.”
The cost to rebuild is really high, and he wouldn’t recover that amount if he sold, so he’s thinking about walking away. Does what the adjuster said mean he could buy another home and still get the extra coverage?
Usually, you get the actual cash value (ACV) of the house until you complete the repairs. Then they pay the rest up to the replacement cost once the work is done. I don’t know the specifics for your state, but this is pretty standard.
@issacfoden Yes and no. The main amount on a replacement cost basis is the home’s valuation. The value should be no less than 80% of the actual replacement cost. If it’s less than that, insurance will only cover up to that percentage. For example, if it’s valued at 70%, they’ll only cover 70%, and you’ll be responsible for the other 30%.
It’s important to check your coverage limits to make sure you have enough protection. Most policies automatically increase based on inflation, but during times when home values shoot up, you might still be underinsured.
@issacfoden Most people don’t know enough about their policies to make sure they have enough coverage. That’s why we depend on our agents.
I recently renovated my future retirement home, and I called my agent to see if I should raise my limits. A lot of people wouldn’t even think to do that.
@issacfoden Exactly! How can we know all the details of our policies to ask the right questions?
That’s why we pay our hard-earned money to insurance companies and agents to keep us informed and up-to-date, right? Or maybe that’s just wishful thinking?
It’s best to ask your adjuster to clear things up.
It sounds like there’s an endorsement on the policy that increases the coverage in case the $350k isn’t enough to rebuild. Sometimes this extra coverage isn’t mentioned upfront because it might be included for free.
But the increase from $350k to $455k is about 30%, not 25%. So, yeah, reach out to your adjuster for more info on what this coverage actually does.
This sounds like extended replacement cost coverage (or something similar, depending on the insurance company).
If the rebuild cost is within the extended coverage (in this case, up to $455k), they’ll pay that. But if he decides not to rebuild, then the extra coverage doesn’t apply, and he’ll only get the face value of the policy, which is $350k.
Even if he walks away, there may be costs like clearing the site, fire department charges, etc., that’ll come out of that $350k.
Most insurance companies don’t offer a cash-out option. The extra 25% is only to cover the extra rebuild costs. Resale value doesn’t matter in this case.
From what I’ve seen, you usually have to rebuild no matter what. It doesn’t matter if you won’t get the money back. The issue is, if you don’t rebuild, the cash-out option (if there even is one) is much less than the rebuilt home’s value.
It really depends on the insurance company and the state. A lot of policies only give you the ACV of the home until you rebuild or buy a new one. Some policies also state that if you rebuild somewhere else, they won’t cover costs above what it would’ve taken to rebuild on the original site.
It’s best to ask the adjuster and look over the policy, especially the “loss settlement” section.