After a fire, it is up to the insurance company to determine if the home warrants a total loss. Basically, the term total loss is defined as an insurance situation where nothing of value is left or where the property can not be brought back to its original value. In terms of your home insurance policy this is a situation where the cost of bringing your home back to its original value is higher than your policy limits.
This is most likely going to be related to the actual structure of the home. Fire is one of the most devastating perils covered by home insurance; the insurance adjuster will inspect the structure to decide if the home is a total loss or not. This is determined by your insurance adjuster and your specific coverage as explained below.
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Total Loss and the Adjuster
After a fire of any kind, you need to contact your insurance company as soon as possible. We know that a fire can shake you up, but it is important that you make this important call so that you can get your home situation taken care of.
Once you make the call, your insurance company will send a home insurance adjuster to your home to assess the damage. The adjuster is provided at no charge from your insurance company. You do have the right to hire an adjuster to come in and assess the damage as well, if you are dissatisfied with your insurance company’s adjuster, but you should wait until you see his or her report before you make that decision.
NOTE: Anyone with a college degree can become an insurance adjuster and they don’t have to be experts in a specific field. Check with your insurance company to see what credentials your adjuster has to ensure that they can adequately assess the damage caused by the fire. High profile companies tend to provide the necessary training for their adjuster but you should always check first.
The fire insurance adjuster will tour your home and determine the damage. If there is significant structural damage then it is likely that your home will be considered a total loss. In addition, much like when a vehicle is deemed a total loss, if the cost of repairing your home exceeds the value of your home (not what you owe to the bank, but the actual value) then it will be declared a total loss as well.
In addition to determining whether or not your home is a total loss, the insurance adjuster is going to work closely with you to determine your other losses. While you may have difficulty keeping focus during this tough time, it is very important that you provide the adjuster with a list of everything that was destroyed in the fire, even if they seem insignificant.
Another thing that is very important is to remember any brand name items that you owned. If you had a Maytag washer, then you need to list a Maytag washer. This is important when it comes to the check that you will eventually get from the insurance company.
What Your Home Insurance Will Cover
Another worry that you will probably have after a fire is what your homeowners insurance policy will cover; especially if your home is a total loss. After a fire your insurance agent will tell you how much you can expect from your insurance company.
You may find that your insurance company not only covers your losses, but that they will cover in excess of your actual losses, depending on what type of coverage that you have. Conversely, you may find that your insurance doesn’t cover all of the damages.
When a check is cut for a home’s damages, the check is usually written to both you and your lender. You sign the check over to your lender and they hold it to be used for repairs or the replacement of your home. This only applies to the money for the structural damage to your home because technically the bank owns the property. A separate check will be written to you for your personal property.
Actual Cash Value vs. Replacement Cost
There are two different types of homeowners insurance that people have to choose from when it comes to complete replacement of their property, Actual Cash Value and Replacement Cost. In addition, a rider can be attached to a replacement cost policy called an Extended Replacement Cost Policy.
If you have chosen an actual cash value policy, then you will find that your losses will exceed the payment from the insurance company. The reason for this is that actual cash value means that the value of the item is based on your original purchase plus depreciation. If you have a Maytag washer that you purchased five years ago for $1,000, then the actual cash value will be $750 (at 5% depreciation, which is the average). This applies to all of your property, including your home.
A replacement cost policy, while having a higher premium rate, provides replacement value for your property. What this means is that your $1,000 Maytag will be replaced with another $1,000 Maytag (or a check for you to purchase that Maytag). If you home was $200,000 when you purchased it, then you will get $200,000 for your home. The only issue here is that this policy doesn’t cover appreciation of your home, nor does it provide for additional costs should it cost more money to rebuild your home, that is where an extended replacement cost policy comes in.
Extended Replacement Cost Policy
An extended replacement cost policy covers costs that exceed your losses. What this means is that if your home was purchased at $200,000 but to rebuild your home to the same specifications will cost $300,000, then the insurance company will pay $300,000; even though that is more than you paid for your home.
Choosing the Right Home Insurance
As you can see, having the right insurance can make all of the difference if you have a fire in your home; whether it is a complete loss fire or something that only affected a single room. If you want to re-evaluate your coverage, you can do that right now by using our free home insurance quote tool. Why not give it a try today?