In 2019, there were 14 weather and climate-related disasters across the United States. This included 3 floods, 8 severe storms, 2 tropical cyclones, and a major wildfire event. The total damage surpassed $1 billion.
If you’re a homeowner, you never want to think about the possibility that your home could be destroyed from an event like this. But, unfortunately, it happens.
Here’s everything you need to know about what happens if you need a home insurance total loss payout.
Filing a Claim After a Disaster
Before you can receive an insurance claim settlement, you’ll have to follow some very important steps.
1. Secure Your Property
When a disaster occurs, insurance companies require that you take reasonable steps to minimize harm to your property. The legal term for this is “mitigating the damage.” This may include things like:
- Covering a leaky roof with a tarp
- Ensuring any fire damage is no longer smoldering
- Boarding up windows and doors to keep vandals and animals out
- Keeping an eye on your property if possible
When considering your insurance claim settlement, the insurance company may consider whether you’ve taken the appropriate steps, so, as long as you can do it safely, make sure you do so.
2. Take Care of Your Basic Needs
If your home is a total loss, there’s a good chance that you didn’t get a chance to pack up all the things you needed before you left. This could include anything from your toothbrushes to work clothes. Your insurance company will reimburse you for the money you have to spend to purchase these items.
However, you don’t have to have your claim approved before you can get the things you need. You can ask your insurance company for an advance on your eventual claim and they should bring a check to wherever you’re staying. Make sure you save your receipts, you may need it while processing your claim.
3. Contact Your Insurer Right Away
The first thing you need to do is reach out to your insurance company right away. There’s often a home insurance claim time limit, so don’t delay!
Make sure you’re prepared to provide your address, policy number, and current contact information. You’ll also need to give a full and accurate description of the damage that has occurred.
The company will typically visit the most damaged dwellings first, so the description you give is very important. Also make sure to let them know if your family has any special needs, as this may move you up the list.
If you’re seeking a flood insurance claim payout, you’ll want to contact the agent who sold you the policy and have them initiate the claim. Find out more about different types of disaster claims today so you’re ready if the unthinkable happens.
4. Keep Track of Your Living Expenses
Your insurance policy likely includes a “loss of use” clause that will reimburse you for your living expenses while you’re unable to use your home.
Expenses like a hotel stay should be fully reimbursed. For other expenses, like meals, you’ll only be paid the difference. So, for example, if you normally spend $350 a week on groceries and you end up spending $500 eating out, you’ll be reimbursed for the additional $150.
5. Keep Paying Your Premiums
Your homeowner’s insurance covers more than just your residence. It also offers liability protection for everyone in your household, including your pets.
You’ll want to make sure you keep this coverage. If, for example, your dog chews up your family member’s expensive couch while you’re staying there, you’ll be glad that you kept your policy. You may be able to contact the company and ask them to cut back the structure coverage, which would reduce your premiums while still keeping your liability coverage.
Home Insurance Total Loss Payout: Actual vs. Constructive
When making a claim for a total loss payout, it’s also critical to understand the difference between actual and constructive loss.
An actual total loss occurs when your home is damaged so severely that there’s no way to recover or repair it. This will often result in you receiving the maximum settlement available under your homeowners’ insurance policy. When you hear people talking about a “total loss” or a property that has been “totaled,” this is likely what they’re referring to.
A constructive total loss occurs when a property is technically only partially damaged. However, in this case, additional damage is considered unavoidable or the property is damaged so bad that it’s beyond fixing.
If the cost to repair the home is more than the home’s current value, then the insurance company is likely to declare it a total loss and payout the property’s insured value.
Other Important Policy Terms
There are also some other terms you need to know when it comes to your insurance coverage and what you can expect to receive.
Total insurable value (TIV) is the full value of your property and everything in it. This is the maximum dollar amount the company will pay in the event of a total loss.
Actual cash value (ACV) is the depreciated value of your property and belongings. This is the amount you would get if you were to sell it secondhand, or as-is (prior to the disaster).
Replacement cost provides you with enough money to actually replace the items that were destroyed. This will give you the most peace of mind but also results in higher insurance premiums.
It’s important to understand your policy coverage before you need it, so you can ensure you won’t end up with any unpleasant surprises if a disaster strikes.
Prepare Yourself for the Unthinkable
Hopefully, the time will never come when you need to file for a home insurance total loss payout. However, if you do, knowledge is power. Now that you know the basics of filing a total loss claim, you’re prepared in case the unthinkable happens.
Want even more valuable information like this? Spend some time browsing through a few more of our blog posts.
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