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What you need to know about
- how to file a claim
- how the claim process works
- what's covered and what's not
Factors That Determine The Amount Of Settlement You Get
Type of Policy
Replacement Cost and Actual Cash Value: Replacement cost policies provides you with the dollar amount needed to replace a damaged item with one of similar kind and quality without deducting for depreciation (the decrease in value due to age, wear and tear, and other factors). Actual cash value policies pay the amount needed to replace the item minus depreciation.
Suppose, for example, a tree fell through the roof onto your eight-year-old washing machine. With a replacement cost policy, the insurance company would pay to replace the old machine with a new one. If you had an actual cash value policy, the company would pay only a part of the cost of a new washing machine because a machine that has been used for eight years is worth less than its original cost.
Extended and Guaranteed Replacement Cost: If your home is damaged beyond repair, a typical homeowners policy will pay to replace it up to the limits of the policy. If the value of your insurance policy has kept up with increases in local building costs, a similar dwelling can generally be built for an amount within the policy limits.
With an extended replacement cost policy your insurer will pay a certain percentage over the limit to rebuild your home -- 20 percent or more, depending on the insurer --- so that if building costs go up unexpectedly, you will have extra funds to cover the bill. A few insurance companies offer a guaranteed replacement cost policy that pays whatever it costs to rebuild your home as it was before the disaster. But neither type of policy will pay for more expensive materials than those that were used in the structure that was destroyed.
Mobile Home, Stated Amount: If you own a mobile home, you may have a stated amount policy. With this policy, the maximum amount you receive if your home is destroyed is the sum you agreed to when the policy was issued. If you opt for the stated amount, update your policy annually to make sure that the amount will cover the cost of replacing your mobile home. Check with local mobile home dealers to find out what similar homes now sell for.
Most insurance policies provide adequate coverage because they include an inflation-guard clause to keep up with increases in local building costs. If you have replacement cost coverage, your insurance company will pay the full cost of repairing or replacing the damaged structure with a building of “like kind and quality." In other words, if you were adequately insured and lived in a three-bedroom ranch before the disaster, your insurance company would pay to build a similar three-bedroom ranch.
Most insurance companies recommend that a dwelling be insured for 100 percent of replacement cost so that you have enough money to rebuild if your home is totally destroyed.
You may not be fully covered, however, if you have made significant improvements on your house, such as enclosing a porch to create another room or expanding your kitchen, without informing your insurance company of the changes at the time.
Temporary living expenses
If you can't live in your home because of the damage, your insurance company will advance you money to pay for reasonable additional living expenses. The amount available to pay for such expenses is generally equal to 20 percent of the insurance on your home. This amount is in addition to the money for repairs or to rebuild your home. Some insurance companies pay more than 20 percent. Others limit additional living expenses to the amount spent during a certain period of time.
Among the items typically covered are eating out, rent, telephone or utility installation costs in a temporary residence, and extra transportation costs. Insurance policies often discuss additional living expenses under the heading loss of use.
Rebuilding and making repairs
If your home was destroyed, you have several options.
You can rebuild a new home on the same site.
Depending on state law, you can sell the land and build or buy a house in a different place, even another state.
You can decide that you would rather rent.
If you decide not to rebuild, the settlement amount depends on state law, what the courts have said about this matter and the kind of policy you have. Find out from your insurance agent or company representative what the settlement amount will be based on.
Concerning repairs, if you downgrade, for example, replace an expensive wood floor with one using a cheaper product, you are not entitled to the difference in cash.