Total Loss Insurance Claims: Tips For Dealing with Home or Business Total Loss Insurance Claims
A home or business total loss insurance claim can be extremely challenging.
By successfully navigating a total loss claim, however, you can receive the substantial amount of money owed to you by your insurance company, helping you fully recover.
Today, we’re explaining everything you need to know about a total loss insurance claim – and how to successfully navigate a total loss claim for your home or business.
What is a Total Loss Insurance Claim?
A total loss insurance claim is an insurance claim where the cost to restore the property to its pre-loss condition is more than its actual value.
One of the most common types of total loss insurance claims is a fire claim. If a fire burns down your entire home or business, for example, then it’s a total loss fire claim.
Total Loss Insurance Claim Example: Let’s say a home has an actual cash value of $250,000. This is the value of the home minus any depreciation. A significant amount of the home burns down. A contractor estimates it will cost $350,000 to repair this damage. At this point, the home is declared a total loss: it costs more to repair your home than it is worth. In this situation, your insurance company should agree to repay the policy limit on your home insurance policy. If you have a $250,000 policy, for example, then your insurance company will send you a check for $250,000.
Total loss is common in all types of insurance, including auto, home, and commercial insurance. Any time repairs or replacements exceed the value of a property, it could be declared a total loss.
Different states have different rules regarding total loss. Some states require repair costs to exceed just 80% of the actual cash value of the property for the property to be declared a total loss. Other states set the limit at 90% or 100%.
Some insurance policies also have different rules for total loss. An extended replacement cost insurance policy, for example, will pay a certain amount over this limit to rebuild your home – say, 20% or more.
How Do Insurance Companies Determine When a Home or Commercial Property is a Total Loss?
After an unexpected disaster at a home or business, you may be wondering: “Is my home or commercial property a total loss?”
First, the insurance company will investigate the claim to ensure it falls under insurance coverage.
Then, the insurance company will send estimators to assess the damages. These estimators – such as a general contractor, insurance adjuster and engineer – will determine how much it will cost to repair and restore your property to pre-loss condition.
If the estimated cost of repairing or replacing the damaged home or commercial building exceeds the actual cash value of the home or commercial building, then the insurance company will declare the property to be a total loss.
Is My Home A Total Loss? Repairing Versus Rebuilding
When investigating your home insurance claim or commercial property insurance claim, insurers will also compare the cost of rebuilding your property versus the cost of repairing it.
In many cases, it’s more expensive to repair a home or commercial building than to rebuild it – even if a large section of the home is undamaged.
Your insurance company will determine how much it costs to repair your home or business property. Then, your insurance company will compare this number to how much it would cost to rebuild your home or business property. If it costs more to repair your home than to replace it, then your home will be replaced.
Don’t Forget About Personal Property Coverage
Almost all home and commercial insurance policies come with personal property coverage, which covers the items inside your home or business.
If your possessions are lost in a house fire, for example, then insurance covers the value of these items (if you have an actual cash value policy) or the cost of replacing these items (if you have replacement cost coverage):
- Actual cash value personal property coverage compensates you for the value of your items, minus depreciation. If you bought a laptop for $1,500 five years ago, for example, and lost that laptop in a house fire, then your insurance may pay you $500 in compensation, which is the cost of the laptop minus depreciation.
- Replacement cost personal property coverage, meanwhile, compensates you for the cost of replacing your items. If you bought a laptop for $1,500 five years ago, then your insurance may pay you $1,250 in compensation, because that’s how much it costs to replace your laptop with a similar one today.
Your personal property coverage is typically separate from your dwelling coverage. It will be stated on your Declarations Page under personal property and it will have a separate value from your dwelling coverage.
How Long Does the Total Loss Insurance Claim Process Take?
The total loss insurance claim process can take anywhere from a few days to a few weeks. More complicated claims with back-and-forth negotiations can last months.
Generally, however, it’s in the insurance company’s best interest to close your claim as quickly as possible. If it is taking too long, it might be time to reach out to a public adjuster.
The insurance company’s adjuster may spend several days determining how much it will cost to repair your home or commercial property. The adjuster might contact superiors to determine whether your property should be declared a total loss.
Once the insurance company reaches a decision, you should be notified promptly and then start to receive funds to either repair or rebuild.
How to Make a Total Loss Insurance Claim for a Home or Business: Step-by-Step Guide
Most total loss insurance claims consist of the following steps:
Step 1) Contact your insurance company when it is safe to do so. Your insurance company will tell you how long you have to file a claim, whether the damage is covered under your policy, and any additional steps you need to take in the immediate aftermath.
Step 2) Make temporary repairs. Your insurance company might send an emergency restoration company to your property immediately to start making repairs. While waiting for the restoration company to arrive, make whatever temporary repairs you can safely perform. Put a tarp over the hole in your roof, for example, to avoid further damage.
Step 3) If you need to relocate, keep all receipts. You may need to move out of your home while it’s being repaired. If so, keep records of all expenses – from gas to meals to hotels. Home insurance policies usually cover your Additional Living Expenses if you are forced to leave your home after a covered event. This coverage falls under Additional Living Expense and it is usually stated on your Declarations Page with a dollar amount for the limit of liability that insurance will cover.
Step 4) Prepare for visits from the adjuster. Your insurance company will send an adjuster to assess your home damages. The adjuster will assess the damage to help determine how much it will cost to repair or replace your home or commercial property, and how much your possessions are worth. Be sure to see our tips for dealing with insurance adjusters here.
Step 5) Prepare an inventory for lost possessions. Your insurance company will ask for as much paperwork as possible to prove the value of your property, including receipts or the approximate value of any lost items. Do not throw out any damaged items until the adjuster has visited. Consider taking photos or videos of any damages to substantiate your claims. The more information you can provide on an inventory, the better. Any electrical items will need a model number and a serial number so that the insurance carrier can check on the value of your contents.
Step 6) Prepare an inventory for home and structure damage. Walk around your property and assess any damages that should be covered by insurance. A fire may have mostly affected one side of your house, for example, but the entire roof of your home may be damaged. Or, soot may have spread throughout an entire business after a commercial property fire. An earthquake or other type of disaster might have left a crack in your walls or swimming pool. There may be problems with your electrical system. Make a note of any damages that were caused and should be covered.
Step 7) Ask for professional inspections on structural damage. Most home and business owners aren’t trained to diagnose electrical problems or structural issues with a building. Instead, we recommend relying on the professionals. Ask for a professional inspection on any large structural damage. Your insurance company may bring in their own professionals such as engineers and you may want to hire your own professionals for help such as a public insurance adjuster.
Step 8) Get written bids from licensed contractors. Each bid should include details of the materials that will be used and their prices on a line-by-line basis.
Step 9) Wait for your insurance company to complete its assessment. Ultimately, you’ll have to wait for your insurance company to return its verdict. The insurance company will determine how much your settlement should be and whether your home or commercial property is going to be repaired or replaced. Then, you can begin working with one of the contractors that provided bids to complete the repairs or replacement.
Types of Policies that Affect Total Loss Insurance Claims
Your home or business insurance policy may have certain terms that affect a total loss insurance claim. Remember that although your policy states you have dwelling coverage for a certain amount, there are additional limits in your policy language that cover items like debris removal and code upgrades that are over and above your policy limits. Notable policy terms include:
Replacement Cost and Actual Cash Value
Replacement cost policies will give you the dollar amount needed to replace a damaged item with an item of a similar kind and quality without deducting for depreciation.
An actual cash value policy will pay the amount you need to replace the item minus depreciation, often leaving you with a large bill that must be paid out of your own pocket.
Let’s say, for example, that a tree crashes into your kitchen during a windstorm, destroying your ten-year old refrigerator. Under a replacement cost policy, the insurance company will pay to replace the old fridge with a new one. With an actual cash value policy, the company will pay less than this amount, because you have used the fridge for ten years and it’s now worth less than it originally had cost.
Extended and Guaranteed Replacement Cost
If your home or commercial property is damaged beyond repair, then most home insurance policies will pay to replace the property up to the limits of the policy.
With an extended replacement cost policy, however, the insurance company agrees to pay a certain percentage over the limit to rebuild your home – say, 20% or higher, depending on your insurer.
Some insurance companies also offer guaranteed replacement cost policies. Under these policies, the insurance company guarantees that it will pay whatever it costs to rebuild your property as it was before the disaster.
Mobile Home, Stated Amount
Total loss insurance claims for mobile homes can be unique. Under a stated amount policy, the maximum amount you can receive if your home is destroyed is the amount you agreed to when the policy was issued. You might buy home insurance for your mobile home with a stated amount of $20,000, for example. This amount would be your total payout after the property is completely destroyed.
When to Hire a Public Adjuster for your Total Loss Insurance Claim
Your insurance company assigns its own adjusters to your claim. These adjusters are employees or contractors working on behalf of your insurance company. The insurance company adjuster’s goal is to pay you as little for your total loss claim as they are legally allowed to pay.
That’s why many home and business owners choose to hire a public adjuster.
A public adjuster is a licensed insurance professional who works on behalf of you – not the insurance company. Public adjusters charge a pre-disclosed fee of 10% to 20% of the final settlement amount.
However, a good public adjuster can increase settlements significantly while also simplifying each step of the entire claim process to help families quickly and fully recover after a total loss.
Some of the situations where you should consider hiring a public adjuster include:
- The disputed amount between you and your insurance company is more than $10,000.
- Your insurance company is dragging its feet, demanding too much paperwork, or otherwise attempting to delay the claim.
- Your insurance company has denied your home or business insurance claim.
- Your insurer is demanding an excessive amount of paperwork to justify any of your expenses.
- Your insurance company has offered a disappointingly low payout for your insurance claim.
- You feel certain that your property is a total loss, but your insurance company disagrees.
In all of these situations, it may be in your best interest to hire a public adjuster.
Many total loss insurance claims meet several of these requirements. They’re high-value claims where a life-changing amount of money is at stake. Hiring a public adjuster could be in your best interest.
Contact ClaimsMate for a free, no-obligations estimate with a qualified public adjuster who can help with your total loss insurance claim.
Stephanie is a property insurance claim expert with over 20 years of experience working as an insurance adjuster, expert witness, appraiser and umpire. She is passionate about sharing her expertise, knowledge, tips and training to help both property owners and Public Adjusters in their pursuit of effectively managing claims and recovering the claim settlement they deserve after a loss.
