Homeowners Claim Question

[mikejp]

I have a family friend who's house recently had significant damage from a burst pipe, with water damage through much of the house. He had recently moved out of the house into a retirement home (which is why no one was home, and the damage was so bad). He would like to sell the house, and has an interested buyer. Both he and the buyer would rather he sell the house as is, so they can move on. So he would prefer to receive a lump sum check from his insurance provider for the damages, and then sell the house at a discount to the buyer. But his insurance provider says that they would not give a lump sum check for the total cost of repairs. Instead, they would give something less than that, with the exact amount still to be determined. So this makes it possible that he's better off having the insurance company repair the damages first, and then sell afterwards.

Is this typical? If there is a major claim that will cost $x, and if the homeowner prefers to simply receive a check, rather than have the insurance provider repair the damages, is it common for the homeowner to only receive a percentage of $x? If so, how much might he expect? Half? more or less?

Thanks for any help.

 

[MGBAgency]

I have a family friend who's house recently had significant damage from a burst pipe, with water damage through much of the house. He had recently moved out of the house into a retirement home (which is why no one was home, and the damage was so bad). He would like to sell the house, and has an interested buyer. Both he and the buyer would rather he sell the house as is, so they can move on. So he would prefer to receive a lump sum check from his insurance provider for the damages, and then sell the house at a discount to the buyer. But his insurance provider says that they would not give a lump sum check for the total cost of repairs. Instead, they would give something less than that, with the exact amount still to be determined. So this makes it possible that he's better off having the insurance company repair the damages first, and then sell afterwards.

Is this typical? If there is a major claim that will cost , and if the homeowner prefers to simply receive a check, rather than have the insurance provider repair the damages, is it common for the homeowner to only receive a percentage of ? If so, how much might he expect? Half? more or less?

Thanks for any help.

Guess it depends on the insurance company. This just sounds like a bad idea to not fix it.

 

[todd02]

Yes depreciation pays first. Then replacement cost checks roll in if he has that endorsement.

 

[djs]

As todd02 said, they will pay the depreciated cost as a check. Once repairs are done, then they settle to full replacement cost coverage (depending on the policy, but it sounds like a replacement cost coverage policy). If your friend doesn't have the repairs done, then they are not eligible for the replacement cost coverage check. This is very normal and there are a lot of reasons why its done this way (mostly to prevent fraud).

To put it in more understandable terms, the total cost to fully repair the damage might be $50,000. They may offer $35,000 as depreciated value up front, then after repairs are done, settle the remaining $15,000 to make it whole again. Of course, these numbers are made up, but the difference between the values can be substantial.

Dan

 

[mikejp]

thank you, Dan - your explanation is clear. I really appreciate the help!

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Thanks, Todd - I appreciate the help

 

[djs]

One more point.... a house with water damage is almost impossible to find financing for without getting a construction style loan. This will make it MUCH more difficult to sell, which will reduce it is sold for by probably more then just the difference in repair cost.

Its worth fixing, though I understand the frustrations in doing it when you want to sell it.

Dan

 

[InsCommentary]

DJS is right. Here's a question I got several years ago:

"Two years ago, my client had water damage to hardwood floors in her home. The floors were no longer manufactured and had to be replaced. The floor is throughout the home, and other room's floors had to be replaced because they no longer matched. The insured collected $14,000 to replace the flooring throughout. However, she decided to pay $1,400 to buff the floors, and banked the difference.

"Two years later (now), she has more water damage (a separate occurrence) to the same floors. She would like to turn in a claim, but she is concerned that she will get caught for not replacing the floor. I told her she will not be able to get another floor, and I question what she is entitled to. If she actually replaced the previous floor, obviously she would be entitled to a new floor. The insurance agreements or conditions must address this. Please advise. Thank you."

Whoever gave her a check for $14,000 without actual replacement was foolish. This is an example of the type of situation most insurers want to avoid.

 

[mikejp]

Thanks, Dan and InsCommentary. This clears up a lot. I appreciate the help.