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What Happens If You Don’t Rebuild / Replace

What Happens If You Don’t Rebuild / Replace

Every so often, a catastrophe occurs that wipes out entire homes and commercial buildings. It may be something localized, like a fire, or something widespread, such as a hurricane, earthquake, mudslide, or explosion. How your insurance policy pays on your claim is determined by a few factors: your deductible, how the policy was written (actual cash value or replacement cost), the coinsurance penalty (if any) and whether the home or business owner plans to rebuild. In most cases, policyholders rebuild. But what if you choose not to rebuild? What happens then? Should You Rebuild Your Home? A homeowner may choose not to rebuild his home after a total loss for many reasons. Perhaps he is tired of the location, or the cost to rebuild has become too expensive. Maybe it is the wrong school district, taxes in the area are too high, or the neighbors host too many loud parties. Can you choose not to rebuild your home? Certainly, but you should check the terms of your policy before the unthinkable happens, as some policies may have different ideas about how to pay if you choose not to rebuild. The Homeowners 3 – Special Form (HO3) has a section entitled Loss Settlement that addresses this issue in a unique way. If coverage is written on a replacement cost basis, then payment will initially be made at actual cash value (replacement cost less depreciation). Once rebuilding is in process or completed, the remainder of the policy face value (less deductible and coinsurance penalties) will be reimbursed. If the structure is not replaced, then no additional money will be paid on...
Homeowners Insurance: Things to Think About

Homeowners Insurance: Things to Think About

When purchasing homeowners or renters insurance many policyholders are usually thinking about two things: is this the least expensive policy I can find and will it satisfy my lender? While these are excellent questions, they shouldn’t be the only questions you are asking, and they shouldn’t be the only reasons that you purchase one policy over another. Here are three other important questions you should be asking yourself AND your broker before signing on the bottom line: Do You Have Enough Structure Coverage? Many homeowners base their structure coverage on either the purchase price of their home or the lender required insurance. While these are good starting points, they may result in a coverage shortfall in the event of a claim. The purchase price of a home often does not take into account the amount it would cost to replace the home in the event of a total loss. A $250,000 home purchased 10 years ago may cost $350,000 to replace in today’s market due to rising cost of labor and materials. Getting a check for $250,000 might seem great until you realize that extra $100,000 has to come out of your own pocket. In addition, if your policy has a coinsurance penalty, you may be on the hook for even more. A 90% coinsurance penalty says you should have insured your home for 90% of its replacement cost value or your claims payment will be penalized. You should be insuring your $350,000 home for at least $315,000, but you only insure it for $250,000 or 80% of the “should” value. In the event of a total loss the...