What Can I Rebuild With Insurance Money After My House Burns Down?

Review and update your insurance homeowner's policy annually.
Review and update your insurance homeowner's policy annually. (Image: Comstock/Comstock/Getty Images)

When your home suffers a devastating event, your losses may be significant. It is natural to want to restore your life back to normal after a fire, but you may not know what you insurance claim money entitles you to rebuild if your insurance claims agent has not explained the limits of your homeowners insurance policy and claims options.

Homeowner’s Insurance Basics

When you purchase homeowner’s insurance, the policy covers your personal belongings, the structure of the house, liability protection and, in the event of a loss, your policy will help pay for living expenses while you recover. The percentage homeowner’s insurance policies pay in the event of a loss, like a fire, varies by insurance company and the type of homeowner’s insurance you purchase. The liability coverage offered in a homeowner’s policy can help cover the medical expenses of guests in your home if they experienced injuries during a house fire.

Actual Cash Value vs. Replacement Cost

When you purchase a homeowner’s insurance policy, it will pay you the actual cash value of the home in the event of a fire or you can receive a claims payment that equals the replacement cost of the home and damaged contents. When you have a homeowner’s policy that only covers the actual cash value of the home, you will receive a check for the original cost of the home, less depreciation. On the other hand, a policy that pays the replacement cost of the home and its contents helps pay for the full cost of rebuilding or replacing your home and its contents, up to maximum limits outlined in your policy. It is a good idea to review your homeowner’s policy on an annual basis with your insurance agent to make sure you have sufficient coverage in the event of a loss, especially if your insurance pays for the replacement cost of your home and possessions, particularly if you completed any remodels or installed expensive flooring.

Rebuilding Allowances

If your homeowner’s policy only covered the actual cash value of your home, you can do what you please with the claim check you receive. Some individuals choose to use the funds to pay the mortgage, while others use it to rebuild or purchase a new home. With a policy that pays for the replacement cost of your home and contents, you will receive the amount of money outlined in your policy, minus any applicable deductibles, to clear your property of debris left after a fire, rebuild your home and additional structures covered in the policy, such as a detached garage. Insurance.com states that before you experience a loss, consider asking your insurance agent about an “extended replacement cost policy.” This type of policy is one that you could add to your existing homeowner’s policy, which would allow you to obtain enough money from your insurance company to rebuild your home exactly as it was before a fire.

Restoration Costs

If smoke damages certain property during a fire, your homeowner’s insurance policy may also pay the cost to restore such items. Such items could include documents, photographs and heirloom books.

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