Long story short, I own a house in MI which suffered extensive water damage. Have been working through the claim process and have a contractor ready to start work. My question is, is it okay for me to make changes using the insurance money, as long as it doesn't incur additional costs? For example, if I had a cast iron clawfoot tub, could I replace it with a cheaper option and use the money saved to have other work done? I actually asked my adjuster about this and he essentially said they don't care what we do with the money as long as it's all used on the house, but I guess I just want to make sure this is true or common.
Is It Okay to Repurpose Reconstruction Funds?
- Thread starter coreymak
- Start date
- 11,995
Varies by state, but usually this is how it works:
They'll give you a check and they don't care what you do with it as long as it gets repaired. If you come back and say it cost more, then they're going to want to see it. If you decided you didn't want to replace with like kind and quality and pocket the money or repurpose it, that's all well and good UNTIL you think they didn't pay enough. If that happens, the clawfoot replaced with a cheaper option gets the difference in value deducted.
To put it another way:
You have a 10,000 claim, they cut you a check for 10k. You decide to spend 7k making repairs of lesser kind and quality, then pocket the 3k to put in a deck. They might be fine with that. If you go back and say your property isn't back to like kind and quality because there are additional repairs, that 3k starts going against those repairs.
In application, I'd always replace it with like kind and quality.
What state are you in?
They'll give you a check and they don't care what you do with it as long as it gets repaired. If you come back and say it cost more, then they're going to want to see it. If you decided you didn't want to replace with like kind and quality and pocket the money or repurpose it, that's all well and good UNTIL you think they didn't pay enough. If that happens, the clawfoot replaced with a cheaper option gets the difference in value deducted.
To put it another way:
You have a 10,000 claim, they cut you a check for 10k. You decide to spend 7k making repairs of lesser kind and quality, then pocket the 3k to put in a deck. They might be fine with that. If you go back and say your property isn't back to like kind and quality because there are additional repairs, that 3k starts going against those repairs.
In application, I'd always replace it with like kind and quality.
What state are you in?
- Thread starter
- #3
Thanks for the reply. The house in question is in Michigan.
I can't speak specifically to Michigan, but Josh's explanation is a good generic description, but leaves out some very important details.
Usually on any decent size claim, the insurance company will pay ACV up front (actual cash value or depreciated amount). When the work is complete, they will pay the difference if you have replacement cost coverage on your policy.
So in your case, the claw foot tub which may have cost new $500, was worth $100 in ACV value, but then you replaced it with a $250 tub (I made up numbers for illustration, I have no knowledge of real numbers).
When it comes time to settle up, they may only pay the additional $150 for the replacement cost. Of course, this is an extreme illustration, but it makes the point.
Do they mind if you move a little money around? My experience is if you are not significantly altering the overall quality of the house, no. Save a few dollars on the tub, put it into the kitchen its all okay. On the other hand, try to save a lot of money somewhere (not like kind and quality), it may not work in your favor.
Also, if you have a lender, they play into this as well. They do not want you to do something that may lower the value of the house.
Also, the additional work done has to be part of the original claim, not different unrelated work. Unrelated work has no coverage and will not be paid up to replacement cost coverage value.
Dan
Usually on any decent size claim, the insurance company will pay ACV up front (actual cash value or depreciated amount). When the work is complete, they will pay the difference if you have replacement cost coverage on your policy.
So in your case, the claw foot tub which may have cost new $500, was worth $100 in ACV value, but then you replaced it with a $250 tub (I made up numbers for illustration, I have no knowledge of real numbers).
When it comes time to settle up, they may only pay the additional $150 for the replacement cost. Of course, this is an extreme illustration, but it makes the point.
Do they mind if you move a little money around? My experience is if you are not significantly altering the overall quality of the house, no. Save a few dollars on the tub, put it into the kitchen its all okay. On the other hand, try to save a lot of money somewhere (not like kind and quality), it may not work in your favor.
Also, if you have a lender, they play into this as well. They do not want you to do something that may lower the value of the house.
Also, the additional work done has to be part of the original claim, not different unrelated work. Unrelated work has no coverage and will not be paid up to replacement cost coverage value.
Dan
Similar threads
