Insurance Payout From “Total Loss” Fire
The term “total loss” is used by insurance companies to describe damage to property where the cost to repair (insurance company payout) exceeds the insurance policy coverage. A home can also be considered a total loss by the insurance company when the cost to rebuild the home is higher than the value of the home.
The payout you receive from a total loss depends upon the amount of your insurance coverage, the type of coverage you have, the value of your property at the time of the loss, the insurance adjuster’s opinion of how much your home and personal property are worth, the circumstances surrounding the fire, and whether or not you plan to rebuild your home.
Type and Amount of Insurance Coverage, Coinsurance Penalty, and Deductible
The amount and type of insurance coverage you purchase will have a large bearing on how much your payout will be after a fire loss. If your insurance covers for “actual cash value”, the payout will be the current value of the fire-damaged property, not to exceed the insurance policy limits. If your insurance covers for “replacement cost” the payout will be the cost to replace your fire-damaged property, not to exceed the insurance policy limits. One thing that property owners may wish to consider is “extended replacement cost” coverage. Extended replacement cost coverage will pay for costs that actually exceed your losses. For instance, if your home was purchased for $250,000 but would take $350,000 to rebuild it, and you don’t have extended replacement cost coverage (it may be called something else), you stand to lose the additional $100,000 needed to rebuild your home. In essence, if you wish to rebuild the home, that $100,000 would have to come out of your own pocket.
Market Value of Property and the Insurance Company Appraisal
After a fire, the insurance company will make the determination whether or not your property is a total loss. It is also up to the insurance company to decide how much they are willing to pay for that total loss, based on how much they believe it will cost to replace the property, and whether or not the cost to rebuild exceeds the current market value of the property. Keep in mind that if you feel the insurance company is in error, you have a right to contest any decision they make.
Circumstances Surrounding the Fire Loss
Insurance companies also work closely with fire company personnel, and police departments to get a better understanding of how fires start. There are two reasons why insurance companies work closely with fire departments and the police. First, they want to find out if negligence caused the fire, and second if the fire was caused by arson, or any other fraudulent or criminal act. Some insurance policies will not pay for fire damage if the fire and ensuing damage were caused by a negligent act of anyone listed on the policy. It should be noted that arson is generally covered if it was caused by someone other than the policyholder.
Plans to Replace the Home, or Keep the Money
If you suffer a total loss to your property, you have the option of rebuilding the property or taking the payout and not rebuilding. Although it is your choice, before making any decision you should look closely at your insurance policy to see what the insurance company can legally do if you decide not to rebuild. Some insurance company policies will pay you the full amount of your loss either way, while others will only pay you the full amount of your loss (for the building or structure) if you rebuild.
Keep in mind, those insurance companies don’t necessarily have the final say in how much payouts will be. If an insurance company makes a payout offer that is unfair, you can always dispute their decision. You have a right to hire an attorney to assess the damage and provide their expert opinion of a fair settlement payout. If you ultimately feel their offer is too low, and you need professional assistance, you can alwaysseek the advice of an attorney.
Should You Consult a Property Insurance Attorney?
Both commercial and residential property insurance policies are complex and difficult for policyholders to understand. Insurance companies recognize and take advantage of that fact. But property and home insurance lawyers, like the Smythe Law Group, Inc., have extensive experience dealing with insurance companies and know how to get property owners the policy benefits they paid for. Smythe Law Group, Inc. is dedicated to building client relationships and establishing trust. If you feel that your insurance company is being unfair in their assessment of your fire damage claim, give us a call so we can help you settle the matter fairly.