Rebuilding and Replacing in the Aftermath of a House Fire

Rebuilding a home after a fire is a deeply emotional and sometimes painful process. To offset the negative emotions, some homeowners wish to use the opportunity to make changes to their home or start fresh entirely. However, home insurance is designed to replace only what you had.

Some common questions after a home fire include how to go about making changes to the home or buying new furniture and belongings, and even about the possibility of walking away from a home that burned down.

Can you do anything you want with Personal Property money?

Can you do anything you want with Personal Property money
After a fire, replacing your personal belongings can be a painful process and many homeowners would prefer to start fresh, accepting a lump sum in cash and buying new things. Lump sum settlements may not always provide you with the best value. Some insurance policies offer lump sum based on Actual Cash Value rather than Replacement Value. That means accepting payment based on the depreciated value of your lost belongings, which will be much lower than the cost to replace the same or similar item from a store.

Some families even choose not to replace all of their lost contents, since some of what we store in our homes is outdated or sentimental, and need not or cannot be replaced . But remember that the insurance company provides compensation based on what you’re replacing, and will not just automatically pay you out up to your limit.

Can you make changes to your home during the rebuilding process?

With the influx of insurance money, it can feel tempting to make the changes you always wanted to make to your home. Unfortunately, your fire insurance claim is only intended to fix damage done by the fire and restore your home back to its pre-loss state, so any changes or alterations might have to come out of your pocket.

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If you lived in an older home, your home insurance policy may have a clause covering the cost of upgrading your home to contemporary building code standards. Older homes will likely be a little out-of-date, and there will be higher costs for bringing your home up to code.

Can you walk away from your home and start fresh?

Can you walk away from your home and start fresh
Typically, you cannot simply walk away from a home that has burned down, especially if you have an outstanding mortgage. If your insurance claim is not enough to pay off your mortgage (and your mortgage is not insured), you could still be left paying the difference between what your insurance covers and what you owe on your mortgage, plus associated costs (such as cleaning up).

Your mortgage company will want to see that the home is rebuilt to a state of equal or greater value, and your insurance company will be obligated (up to your insurance limits) to restore your home to its pre-loss state.

Keep in mind that your insurance policy covers the cost of damage done to your home, not the full market value of your home and the property. Home values are typically much higher than home insurance policy limits, since fires and floods typically do not affect the location of a home or its grounds, both of which are factors in the overall market value.

Those are some of the questions you may have about rebuilding after a fire. For the basics, everything you need to know about fire insurance claims can be found online or by talking to an insurance adjuster. As you rebuild, consider all of the options available to you.