What to expect from your insurance company

The first check you get from your insurance company is often an advance, not a final payment. If you're offered an on-the-spot settlement, you can accept the check right away. Later on, if you find other damage, you can "reopen" the claim and file for an additional amount.

Most policies require claims to be filed within one year from the date of disaster. When both the structure of your home and your personal belongings are damaged, you generally get two separate checks from your insurance company. You should also receive a separate check for additional living expenses.

• Structure If your home is mortgaged, the check for home repairs will generally be made out to you and the mortgage lender. As a condition of granting a mortgage, lenders usually require that they are named in the homeowners policy and that they are a party to any insurance payments related to the structure. The lender gets equal rights to the insurance check to ensure that the necessary repairs are made to the property in which it has a significant financial interest. This means that the mortgage company or bank will have to endorse the check. Lenders generally put the money in an escrow account and pay for the repairs as the work is completed. You should show the mortgage lender your contractor's bid and let them know how much the contractor wants up front to start the job. Your mortgage company may want to inspect the finished job before releasing the funds for payment. Some construction firms require you to sign a form that allows your insurance company to pay the firm directly. Make certain that you're completely satisfied with the repair work and that the job has been completed before signing any forms. Remember, you won't receive a check for the repair job. The firm will bill your insurance company directly and attach the "direction to pay" form you signed.
   
• Personal Belongings If you don't get a separate check from your insurance company for the contents of your home, the lender should release the insurance payments that don't relate to the dwelling. It should also release funds that exceed the balance of the mortgage. State bank regulators often publish guidelines for banks to follow after a major disaster, setting out how these and other matters should be handled. Contact state offices to find out what these guidelines are. If you have a replacement cost policy for your possessions, you normally need to replace the damaged items before your insurance company will pay you the replacement cost. If you decide not to replace some items, you will be paid their actual cash value. You don't have to decide what to do immediately. Your insurance company will generally allow you several months from the date of the cash value payment to replace the item. Find out how many months you are allowed. Some insurance companies supply lists of vendors that can help replace your property.
   
• Additional Living Expenses Make sure the check for additional living expenses is made out to you and not your bank or mortgage lender. This money has nothing to do with repairs to your home and you may have difficulty depositing or cashing the check if you can't get the mortgage lender's signature.
   
• What If I Don't Rebuild? If your home was destroyed, you have several options:

  1. Rebuild your home on the same site.
  2. Sell the land your old home was built on and build in a different place.
  3. Rent a home rather than rebuild the one that was destroyed.
      

  If you decide not to rebuild, the settlement amount depends on state law, what the courts have said about this matter and the kind of policy you have. Read your policy carefully if you decide not to rebuild and find out from your insurance agent or company representative what the settlement amount will be based on. A similar rule applies to repairs. Suppose you decide to change the kitchen flooring materials when you rebuild. If you replace your expensive floor with materials that are cheaper but more practical, you are not entitled to the difference in cash.
  
  Unless the cost of repairs is a small amount, your insurance company may initially pay you a sum equal to the actual cash value. It will withhold the balance of the full replacement cost amount until after the repairs are completed.