Article Score0

My fiance’s parent’s, my soon to be in-laws, had their has burned to the ground yesterday afternoon. They lost pretty much everything going back decades as well as heirlooms from passed relatives and every photo album that’s important.

Bill, my father in law, has been paying fire insurance for 20 years. I’m not able to attend the paperwork session due to my job (with the insurance company), but generally speaking, what happens?

I’ve yet to experience home ownership but that will change soon, but that doesn’t mean I know every single in and out thus far, which is why I’m here.

Is the house that burned down paid off?
Does insurance cover the cost of a new home of equal or lesser value?
Would their mortgage restart at the same price but with a new house?
What else happens with fire insurance?

5 Thoughts on How does fire insurance work?
  1. Reply
    Steve D
    July 8, 2013 at 5:29 am

    1) No, the original mortgage is not paid off.
    2) A new house will be built to the extent of the insurance – if coverage is enough to build a similar house, that’s what will happen.
    3) Nothing happens to the mortgage, they keep paying as always
    4) Homeowners should also cover most of the contents (obviously, you can’t replace heirlooms, etc.). Hopefully, your uncle has an inventory of what was in the house (or a generic coverage amount – i.e., $ 25,000).

  2. Reply
    July 8, 2013 at 6:04 am

    If there is a mortgage on the house, they will need to continue making the payments.( even though
    the house is no longer standing)
    If they have a clause in their insurance to cover it, they may be provided with living accommodations
    for a certain period of time.
    If their insurance covers replacement,then the house will be rebuilt. If not, maybe only a portion of it.
    In that case,they may be able to remortgage and increase the principal to give them extra funds
    to rebuild.
    Depending on what kind and how much insurance they carried on the contents and personal
    effects, all or part could be covered. Pictures of every room,showing contents is always a big help.
    If they carried mortgage insurance as well, then the mortgage could be paid off.

  3. Reply
    July 8, 2013 at 6:34 am

    Generally, the insured has to make a list of all the stuff they lost in the fire.

    If the house was adequately insured, AND they have “replacement cost” coverage, IF they rebuild the house, they will pay up to the policy limit to rebuild. If they choose to NOT rebuild, they get the depreciated value of the house, which is made payable jointly to them and the lender.

    They leave a lot of money on the table, by not rebuilding on that lot.

    It does not pay to buy a new home. It pays to repair or rebuild the old home, on the old lot.

    Mortgages do NOT reset.

    There are about 50 more variables involved – but THEIR AGENT should be walking them through this.

  4. Reply
    July 8, 2013 at 7:26 am

    Normally the insurance pays to rebuild the house and your in laws would continue to make the monthly payments. The insurance should also pay for substitute housing while theirs is being repaired and also pay up to the limits of personal property destroyed in the fire. They can not repair or replace photos and albums so there will be no allowance for those items. There are several different homeowners policies and the coverage may vary some depending on what they purchased. It is a traumatic loss and will take some time to get past it. Wish them GOOD LUCK.

  5. Reply
    July 8, 2013 at 8:03 am

    The insurance pays only whatever the home was worth.

    If the homeowners were underwater on the mortgage and they do not rebuild the home, then the insurance does not pay off the mortgage. It pays only what the home was worth, and they continue to owe the rest of the mortgage. The insurance does not give them a new home or pay off the entire mortgage. If they want the mortgage paid or a new home, then they have to pay off the rest of the mortgage, themselves, and make the downpayment on a new home, themselves. Their new mortgage would be however much the new home costs, minus whatever their downpayment is. It would not be the same as the old mortgage.

    If they were not underwater and they do not rebuild the home, then the insurance pays off the mortgage and pays the homowners their equity (what the home was worth, minus what they owed on the mortgage). They may use this money for the downpayment on another home, which can be worth more, less, or the same amount, if they want. Their new mortgage would be however much the new home costs, minus whatever their downpayment is. It would not be the same as the old mortgage.

    With some, but not all, insurance policies, they also have the option to have the insurance pay to rebuild the home. If they do that, then they continue to have the same mortgage, at the same price, and nothing restarts.

    Leave a reply

    Register New Account
    Reset Password