A home or business total loss insurance claim can be extremely challenging.
By successfully navigating a total loss insurance claim, however, you can receive the substantial amount of money owed to you by your insurance company and fully recover.
Today, we’re explaining everything you need to know about a total loss insurance claim for a home or business and what happens if your business or house is a total loss.
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. A total loss fire claim where a fire burns an entire home is a common example of this.
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. It’s going to 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.
Total loss is common in all types of insurance, including auto, home, and business 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 is a Total Loss?
After an unexpected disaster at a home, you may be wondering: “Is my home 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, home insurance adjuster and engineer – will determine how much it will cost to repair and restore everything.
If the estimated cost of repairing or replacing the damaged home exceeds the actual cash value of the home, then the insurance company will declare the home to be a total loss.
Is My Home A Total Loss? Repairing Versus Rebuilding
When investigating your home insurance claim, insurers will also compare the cost of rebuilding your home versus the cost of repairing it.
In many cases, it’s more expensive to repair a home 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. Then, your insurance company will compare this number to how much it would cost to rebuild your home. 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
Most home insurance policies come with Personal Property Coverage. If your possessions are lost in a house fire, for example, then insurance will cover the cost of replacing these items if you have replacement cost coverage, or if you have not purchased the replacement cost coverage for your contents, they will pay the actual cash value of your items, which was the initial cost minus any depreciation for its age and condition.
Your Personal Property Coverage will usually be 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.
The insurance company’s adjuster may spend several days determining how much it will cost to repair your home. The adjuster will contact superiors to determine whether your home should be declared a total loss.
Once the insurance company reaches a decision, you will be informed. Then, you will receive a check in the mail for either the total loss or the repairs.
How to Make a Total Loss Insurance Claim for a Home or Business
Most total loss insurance claims consist of the following steps:
Step 1) Contact your insurance company as soon as you can safely 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.
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.
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 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 determine how much it will cost to repair or replace your home, and how much your possessions are worth.
Step 5) Prepare an inventory for lost possessions. Your adjuster will ask for as much paperwork as possible, including receipts or the approximate value of any lost items. Do not throw out any damaged items until the adjuster has visited. Consider photographing or videotaping 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 home and assess any damages you want 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 the entire home. 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 homeowners aren’t trained to diagnose electrical problems or structural issues with a home. Instead, we recommend relying on the professionals. Ask for a professional inspection on any home 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 payout should be and whether your home is going to be repaired or replaced. Then, you’ll work with one of the contractors above 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. 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 is damaged beyond repair, then most home insurance policies will pay to replace the home 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 home 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. That would then be your total payout if the home was 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. This 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 aspect and step of the entire claim process to help families with a quick and full recovery after a total loss.
Some of the reasons to hire 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
In all of these situations, it may be in your best interest to hire a public adjuster. Contact ClaimsMate to find a qualified public adjuster who can address your insurance needs.