Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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Destroyed House & Home InsuranceWhile your home insurance won’t pay off your mortgage directly if your house is destroyed but it will give you the means to rebuild or to pay off your lender yourself.

If there is a mortgage on your home you and your lender will work together with funds from the insurer.

Read on for details regarding home insurance pay offs with a mortgage, without a mortgage and other details you should know.

Also, be sure to enter your ZIP above to compare FREE insurance quotes!

Mortgage on the Property

If your home is destroyed and there is an existing mortgage on it, you and the lender will receive a check from the insurance company. Until the mortgage loan has been paid in full, the lender effectively owns the property with you. The institution wants to make sure that its interests are protected by having insurance in place so that it receives the money after a catastrophic loss.

Once you have the check from the insurance company in hand, you sign it over to the lender. The settlement amount will be held in escrow while the home is rebuilt. As the construction proceeds, the lender will release funds in installments to cover the cost. In most cases, there will be three payouts to the building contractor.

Keep in mind that in some cases, you will be required to pay out money toward the cost of rebuilding your home yourself.

The lender must verify that the work has been done and then reimburse you for that amount. Be prepared to get receipts to submit to the lender for this purpose.

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No Mortgage in Place on the Property

home insurance pay off my mortgage

If you own the property free and clear, the insurance company will present you with a check to compensate you for your loss. Before doing so, investigators will need to come to the property to evaluate the situation. In the case of a fire, the cause will need to be determined before any money is paid out.

Once you have the money in hand, you can decide whether you want to rebuild on the same location or move elsewhere. The amount of money you will receive will depend on whether you have insurance for the cash value of the property, including your personal possessions, or the replacement value.

If you decide that you don’t want to rebuild, you may still have to deal with the aftermath of the loss from the insurance proceeds. Depending on the bylaws of the municipality where you live, you may be required to make arrangements to have the remains removed or bulldozed so that there isn’t any debris left on the lot. Failing to do so may mean that you will be subject to a fine levied by the city.

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Cash Value and Replacement Value Coverage

Cash value of the property means the insurance coverage pays out according to how much your home and property is worth now.

Buying replacement coverage will cost more, but it provides you with a better level of financial protection.

Over time, your belongings aren’t going to go up in value; they will depreciate. A piece of furniture that has been in your home for several years is not going to be worth a lot of money and if you only have coverage for cash value in place, you won’t receive enough to replace your belongings from the insurance proceeds.

insurance pay off my mortgage if my house is destroyed

Replacement value insurance pays for the cost of replacing your home and your personal property. Some insurers will provide you with funds for the cash value of your belongings first. In that situation, you would be expected to keep receipts for the new items as you buy them and submit them to the company for processing. Having an inventory or pictures of the interior of your home before the loss can help to make this process easier. You can show the insurer that you are replacing a specific item with one that is similar in make, model or type, and ask for reimbursement.

If you are taking out a mortgage, your lender will likely insist that you have homeowners insurance in place as a condition of advancing the funds. You can still work with the insurance company of your choice to get this valuable protection, though. The amount and type of coverage you buy is up to you, but you should have enough coverage in place to at least cover the amount of the mortgage.

By shopping around for your homeowners insurance, you will be well protected in the event of a total loss. To find out more about your coverage options, why don’t you click on the insurance tool on this page. It’s FREE, and you can get quotes from several companies quickly and easily.