Do Houses Get 'Totaled' Like Vehicles?

Factual Questions
1

You have a car on which you have full coverage w/ no deductible; it gets smashed to bits by some horrible act of man and the repair bills outweigh the value of your car. Your insurance company cuts you a check for the value, terminates your coverage and the car comes to rest to either be fixed on your own dime or scrapped.

But what happens when it’s your house and the repair bills outweigh the home’s value? Does your insurance company ‘total out’ your home or pay what it takes to repair the home no matter what?

Happy to say I do NOT need answer fast.

2

A house can be “totaled” - just look at some of the ones that are swept away whole by floods.

How insurance handles that partly depends on your policy and its riders. There is an option to insure for replacement cost, but I think the default is to insure the house for some specific value which may or may not be enough to actually replace it.

This assumes the house is covered at all. Many policies don’t cover floods, earthquakes or terrorism, for starters.

3

Yup, it’s possible for a house to be so badly damaged by a covered loss that the best answer is to raze it and rebuild it.

The resulting replacement depends on a lot of things, but the goal is to rebuild it as close to the original specs as allowable by current building codes (if you’re in an old victorian with lead pipes and knob/tube ungrounded wiring, for instance, you’re going to get copper/PVC and romex). Typically the house is insured for a stated amount, say $150,000. If the cost to rebuild it is less than $150,000 then you shouldn’t have many problems. If it’s a little more (say, $175,000) your policy might allow for the difference and pay the $175. If it’s a LOT more then you’re going to run into trouble.

4

This happened to a friend of mine - her house was swept by fire and was a total loss. The insurance company paid to have it rebuilt. It was a fairly new house, so I don’t think there was much difference between the insured amount and replacement value.

5

The price of your homeowner’s policy is in large part dependent on the value for which you insure your house (and possessions within). That value represents the maximum payout.

Most mortgages require that you carry coverage at least equal to the amount you have borrowed.

6

Out neighbors got burned out ~10 years ago. After some analysis the insurance company declared it a total loss. Their policy was one of the rebuild to original type, so it was leveled and rebuilt. The insurance assessor went around the neighbor and checked out similar homes and cut a check for the amount to build one of those. They then took the money but made a few changes to the design (a better entry for example). The insurance company didn’t have any say so in that. Pretty nice.

You can have a cheaper policy where you’re insured to a certain value. (Based on square feet, comparables or some such.) But sometimes those values get out of date and it wouldn’t be enough for a rebuild. Generally not advised to go cheap on something like this.

7

When the big pine tree fell on our (rented) mobile home in May 2009, its obvious damage was to one small section of roof, but when the adjuster began inspecting, he found the whole mobile home frame had been driven down on the concrete pillars it was supported by, the water lines had been ruptured, and the electrical entrance (which was amazingly still working) had been pulled from the panel it was mounted on, and was held in place by the conduit. The net result was that the premises got totalled by the insurance company, the landlady got the payoff (since she owned it) and we found ourselves homeless. (Amazingly generous Dopers helped rescue us – the state and county were essentially useless, and we of course didn’t have any disaster insurance.)

8

This must be a particular challenge when your home is ‘underwater’ - mortgaged for more than it’s worth. Does the insurance company honor the amount of your mortgage or the actual value of the home as far it’s assessed or comparable to the neighborhood?

9

A friend of mine had his house ‘totaled’ in the tornado that went through North Minneapolis earlier this summer. It tore the whole roof off the house, thus exposing it & the contents to the rain & wind that was happening.It was an older house, and between roof replacement & repairs to rain-soaked plaster walls, etc., his insurance told him that the house was probably totaled.

Note however, that this doesn’t mean he gets the full amount of his homeowners insurance. They typically list about 15-20% of the value as the land itself, which is still there, so the maximum they would pay him is 80-85% of his policy.

10

When I was insuring my house the agent offered me a policy with coverage that didn’t amount to the price I had paid for the house. He explained that even if the house were completely destroyed by fire, the land would still be there and wouldn’t need to be replaced. I’d say it would be impossible to total your investment in a house (as in they pay you and you walk away). You still have the lot.

11

I don’t think the insurance typically covers the value of the land, though - it’s usually only on structures.

12

My house is insured for more than I paid for it. I was told that this was because it had to be insured for the cost to rebuild it, which was about 20% more than the purchase price. Fortunately, I haven’t had the chance to confirm this. YMMV

13

This is actually a pretty simple concept that is covered with red herrings.

Generally speaking, insurance is intended to repair damage to the house up to a certain amount. If it is more cost-effective to demolish & rebuild, that’s what happens (total loss); if it’s more cost-effective to repair, that’s what happens. How much you owe on the house doesn’t enter the equation. This fact is little-understood by the mortgage industry which assumes the value of the estate = rebuild cost. Totally not the case. If you buy a house for $250,000 for instance, a fair chunk of that price is simply for the land the house sits on. The land is not insured, in fact if the land goes anywhere (earth movement) it’s specifically excluded from coverage. Furthermore, if the cost of construction in your area is $75/square foot and you have a 1500 sf house, its cost to rebuild should be in the area of $112,500. THAT’S the ideal number you want to insure the house for in order to avoid being under/overinsured. See even if you insure that place for $250,000 the most you’ll get is “what it costs to rebuild the house.”

So let’s say our $250,000 home is all of a sudden only worth $100,000 in the super soft housing market. 2 facts don’t change:

  1. I still owe what’s left on my mortgage, even if that’s $200k
  2. The cost to rebuild the house is still $112,500

If the place burns up, you’re owed the $112,500. So do you take the money and run, leaving a smoking hole where the house used to be? Nu-uh. Because the payment will be payable to you AND the mortgage company and they won’t sign the check until the collateral is restored.

14

Oh - and to clarify: say your house is worth 500,000 - of which 100,000 is the land. You would usually only insure for 400,000 (plus whatever “replacement cost” or “inflation” riders you want).

15

My parents house was burned 4 years ago.

The insurance company told them that they could

  1. rebuild, and the insurance would cover X dollars towards a new building.
  2. take the X dollars and use it to buy or build in another location.
  3. chose to not rebuild and the insurance company would write them a check for about 75% of what they would pay to have it rebuilt.
16

One interesting caveat I got from my insurance agent. I’m covered for replacement cost on my house, but the zoning has changed in the 97 years since it was built. My lot is not big enough to rebuild on if it burns down or something. She said if it burned down, I would take the money and buy/build another house somewhere else and I guess donate the lot to the city. There are several ‘little parks’ around town that I believe came about in this way.

17

State law varies, but as a general principle, if you should ever find yourself in such a situation, you would probably be entitled to a hardship variance – essentially it’s saying that strict application of the zoning law would deprive you of resuming your longtime accustomed use of your property which you were forced to cease (when your house was totaled) through no fault of your own, so the zoning board ought to give you some minimal leeway from the strict requirements to allow you to resume your use. IIRC you are generally required to rebuild on the old footprint – note that it’s something you have to ask for and is discretionary but expected when you fall within the set guidelines. Your local planning/zoning office can tell you more if you need it. (Paging Elmwood, did I get the details and explanation right?)

18

Floods, earthquakes and other calamities are not usually covered by insurance because they are acts of God

:eek:

19

Wow, I guess other things can get ‘totaled out’ too - like a dog.

20

Yes, insurance covers repairs to make the the insured item - car, house, boat - the same as it was before. If this means complete replacement, that happens. If it means doing repairs, that happens - whichever is cheaper.

I had a friend whose garage sided onto a walkway between streets. Some little buggers lit a fire which consumed his garage and got into the rafters on the the side of the house (And melted the whole front of his new Hyundai SUV :slight_smile: ). The insurance basically replaced the burnt few trusses, his garage, and then ripped out all the (heavily smoked) drywall, windows, siding, doors etc. and pretty much rebuilt the house - probably still cheaper than building a frame from scratch too.

In another case I know, the owners of a 3-story apartment had a tenant with a grease fire that got into the attic space and burnt a lot of the roof off. The market was in a down-turn and the owners were happy to take the money and demolish, but the insurance company said no, the roof and interior repairs would be cheaper than writing off and demolishing the building - so rebuild it was.

You insure for a basic amount - replacement and contents. Many people underinsure because they forget construction materials and costs are higher than, say, 15 years ago. You also need to insure for contents (or spend the next 6 months n your pyjamas); you would be surprised how much some of the contents - TVs, furniture, appliances, bedding and clothes, etc can add up to; also to cover hotel costs while waiting.

You also have to read policies carefully or have a good agent. In places where floods, earthquakes, or hurricanes are common, specific protection for those are usually an add-on to the basic coverage. I read about one city where they had a water main break - some people had a foot of water come into their yard and fill their basement, but the insurance called it “overland flooding” and without flood coverage, the owners were SOL. (Sewer backup is covered) The city had a bylaw saying they were not responsible for water main break damage. Owners, doubly SOL.

Policies for contents also often exclude certain special items - jewelry, fancy cameras, other expensive toys, expensive collectibles - you need special appraisal, and specific coverage for those items. As for very personal stuff like family albums - not much you can do except keep backups…

So - you get the coverage you pay for. Read carefully.