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Do I Have to Rebuild for My Insurance to Pay?

     Most of the time, homeowner's insurance pays to repair or rebuild a damaged home so its owners can continue to live there as they did before the loss occurred. Sometimes, though, you may prefer to take the insurance money and move somewhere else instead of rebuilding. Several factors determine whether this is possible and how much money you receive.

1.  Mortgage

o    If you have a mortgage on your home, you are not the only owner. Your homeowner's insurance company must represent all the owners, including the lender, on settlement checks. You will not be able to cash any check with the lender's name on it unless the lender endorses it, which is unlikely. The lender has invested money in your home and wants to ensure it is repaired so its investment is secure.

Total Loss

o    If your home is destroyed and the settlement amount you receive from your insurer exceeds the outstanding balance on the mortgage, you may be able to sign the check over to your lender to pay the balance due. If there is any settlement money left after satisfying the mortgage, the lender will issue you another check for your portion. Some lenders may not do this; they may insist on rebuilding the home. You must do what the lender demands.

No Mortgage

o    If you own your home without a mortgage, the settlement money is entirely yours. You may want to repair partial losses to your home to keep it safe and functional and retain its value, but if you prefer to take the money after a total loss instead of rebuilding, you can. Your local government may insist you clean the debris from your old home off your parcel, but otherwise you can take the money and run, so to speak.

Actual Cash Value

o    If you choose not to rebuild your home, you may receive a smaller settlement amount than if you were to rebuild. Homeowner's insurance is settled as actual cash value, meaning settlements are diminished according to depreciation, unless you have a replacement cost endorsement. However, many insurers don't pay replacement cost unless you actually replace the damaged property. Therefore, if you choose not to rebuild your home, you may only get an actual cash value settlement.

By Stephen Hicks, eHow contributor

Posted 3:27 PM  View Comments

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Don C said...
Why would the lender have anything to do about whether I would rebuild a total loss home? They have their money, why dont they just go away. I may want to build a smaller home because my children are gone, etc. Or build a small house for my mother in law, etc. Why is the lender involved?

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