House Fire

[Bitnis]

I have a rental house that burned up the other day. Nobody was in the house, so regardless of the outcome we are good so far. Renter says it may have been her boyfriend. Fire Marshall said possibly some of the original wiring in the attic.

I'm wondering if anyone here can tell me how this works.

Let's say the house has a loan for $50k and is insured for $100k. Everything is burned so I am assuming it is a total loss. Are they required to pay the amount the house is insured for?

How will this money be distributed?

Who owns the house and is responsible for cleanup after the money is distributed? I do not want to rebuild this house although I would like to scrape the house and keep the land if that's an option.

Thank-you

 

[djs]

I'm not sure what state you are talking about, so rules may vary.... keep that in mind. The comments below are for California and are somewhat generalized.

What you owe has no bearing on what the claim amount will be. Don't ever confuse these two things, they are completely different.

The claim amount will be for what it would cost to rebuild the house. There are some policy variables here, such as whether it will replace it as it was (i.e., pay the depreciated amount) or replace it new. I personally will only sell 'replace it new' style policies, but I can't speak to other agents.

Same thing with your personal property inside the house, if you had any. The policy will determine how it is paid for, either at the fair market value or the full 'new' replacement cost, up to the policy limit.

Here's the catch. $100K in reconstruction coverage isn't a whole lot and may not be enough to rebuild the house. If it's under 80% of the replacement cost, you may be in a situation where co-insurance is involved. You're claims adjuster will explain this to you if it comes up.

You are almost always better off rebuilding the home, even if all you do is resell it. Insurance companies are pretty savvy when it comes to this stuff, and while I'm not saying you are looking at fraud, not rebuilding is a fraud redflag. Also, if it's in an incorporated area, you may not have a choice from the city/county. Also, any policy which covers 'full new replacement' coverage, only covers this if the repairs / rebuild are completed. If not, they pay fair market value (again, this helps them avoid a fraud problem).

So, some examples, for the play along at home game. I'm ignoring personal property since it's a rental.

800 sq ft house, $150/sq ft to rebuild = 120000 total loss. 80% of the $120K loss is 96K, so you clear the 80% hurdle. The insurance company will pay the contractor upon invoice submission, and then square everything up at the end. Anything over $100K is up to you to cover (unless you have extended replacement coverage). Of course, your deductible comes into play as well.

1000 sq ft house @ $150/sq ft to rebuild = $150K loss. 80% is $120K, so you would be under 80% covered and would be subject to co-insurance. Since you are only 66% covered, the insurance company would only cover 66% of the loss, and I think only 66% of the $100K (could be wrong on that part).

Let's assume a $100K loss and you don't rebuild. It costs about 20% less to use old wood (i.e., what the house was currently built out of instead of new wood). Total claim would be somewhere between $75K and $80K. Out of this, the insurance company will pay the mortgage company and then give you the balance (minus any deductible).

In all cases, either you or the mortgage company owns the property. Unlike cars, the insurance company does not buy it from you.

Just a word of caution. Insurance companies don't mind repairing/replacing stuff. It is what they do. Despite some opinions to the contrary, it is actually what they get paid to do. They do have an issue when someone walks away with more money in their pocket after the loss than before the loss (i.e., a betterment). This is why not rebuilding is a problem for insurance companies. It raises suspicion on why the place burned.

By the way, money is usually distributed in pieces, not in a lump sum, on large claims. This can happen very quickly, but in general, they pay the bills as the work is done.

Dan

 

[bobson]

I have a rental house that burned up the other day. Nobody was in the house, so regardless of the outcome we are good so far. Renter says it may have been her boyfriend. Fire Marshall said possibly some of the original wiring in the attic.

I'm wondering if anyone here can tell me how this works.

Let's say the house has a loan for $50k and is insured for $100k. Everything is burned so I am assuming it is a total loss. Are they required to pay the amount the house is insured for?

How will this money be distributed?

Who owns the house and is responsible for cleanup after the money is distributed? I do not want to rebuild this house although I would like to scrape the house and keep the land if that's an option.

Thank-you

Since this is a rental as opposed to a home in which you live, it is not uncommon to have an ACV policy. In my state the company will write a $100,000 check to you and the bank. You give the bank it's $50,000 and you keep $50,000.

Your name is on the deed of the property so you will have to clean up the land. There may be some additional coverage for cleanup depending on the policy. You keep the land since you own it.

 

[djs]

Are you saying they will write the $100K check even if the loss was only $90K? Or did you assume the loss was at least $100K?

Also, the insurance company should send the check to the bank for the mortgage, or make it a two party check to whoever is doing the work.

I'm curious, what state are you in? I've never seen an insurance company simply write one big check for a home loss. Auto's, yes. Small home issues, all the time. Major losses, its hard to calculate initially. They usually put money on the table to get stuff going and then continue to work on the adjustments.

Dan

 

[bobson]

Are you saying they will write the $100K check even if the loss was only $90K? Or did you assume the loss was at least $100K?

Also, the insurance company should send the check to the bank for the mortgage, or make it a two party check to whoever is doing the work.

I'm curious, what state are you in? I've never seen an insurance company simply write one big check for a home loss. Auto's, yes. Small home issues, all the time. Major losses, its hard to calculate initially. They usually put money on the table to get stuff going and then continue to work on the adjustments.

Dan

I live in an 'agreed value' state. Based on the initial statement I assumed the rental burned to the ground, a total loss. If that is the case he gets paid the coverage A limit.

 

[cordellpascall]

i am not sure how exactly it works but i assume as told before there's a cretin limit.