Total Loss - Payment Options

[URDRWHO]

Quite a long time ago I remember reading an article about insurance company payment situations after a total loss. It had to do with guaranteed replacement, covering for full replacement value, etc.

What I remember was a paragraph about insurance company policy that was guaranteed replacement not wanting to pay if the insured did not attempt to rebuild. They wanted to take the money and leave. The point from the insurance company was that it was to prevent moral hazard. Hm...there is some sense to that. If I have no attachment to wanting to rebuild, I would therefore allow my home to become a hazard leading to a fire and just walk with a big payout. Or worse it would lead to more arson which creates gaming instead of insurance. I'm wondering about good public policy in these situations. Leaving a big hole in the ground in a nice neighborhood would not seem a good thing.

Any ideas about this matter? I have a feeling that it would become an actual cash value situation.

 

[F150]

this is one reason, a mortgage lender wants listed on the policy

 

[djs]

All claims (even without guaranteed replacement value) are paid actual cash value until the work is completed, then a settlement check is issued.

This is also true with contents, even if you have full replacement costs. Only comes into play if the item is replaced, other than that, it is paid on actual cash value.

On small losses, an insurance company may pay the full amount upfront, for instance, on a fence claim when they are paying the contractor (if the fence has full coverage) since its a hassle to write a second check for such a small amount. Normally though, its ACV then settlement, normally pretty seamless to the insured.

Dan

 

[URDRWHO]

Thanks and it was kind of along the lines that I was thinking but I just didn't know the order of the flow of events.

All claims (even without guaranteed replacement value) are paid actual cash value until the work is completed, then a settlement check is issued.

This is also true with contents, even if you have full replacement costs. Only comes into play if the item is replaced, other than that, it is paid on actual cash value.

On small losses, an insurance company may pay the full amount upfront, for instance, on a fence claim when they are paying the contractor (if the fence has full coverage) since its a hassle to write a second check for such a small amount. Normally though, its ACV then settlement, normally pretty seamless to the insured.

Dan