If Your House Burns Down, Do You Have to Rebuild?

If a fire burns down your home, your home insurance should help cover the costs to repair or rebuild your home up to your coverage limit. But what if you don’t want to rebuild? What are your other options? While many homeowners choose to rebuild their homes after they’ve been destroyed, you always have the option of taking your insurance payout and buying a new house.

Here’s everything homeowners need to know about what to do after a fire burns down their home.

Does Homeowners Insurance Cover Wildfire Damage?

Homeowners insurance typically does cover damage from wildfires. Home insurance policies include several coverages to help homeowners recover after a fire, including dwelling coverage, other structures coverage, loss of use coverage, and personal property coverage.

Dwelling coverage and other structures coverage help pay to repair or place your home and its detached structures, like a detached garage or fence, after a wildfire.

Loss of use coverage helps pay for temporary living expenses while your home is being rebuilt. This includes temporary accommodations, meals from restaurants, and other temporary living expenses.

While dwelling coverage helps pay to rebuild your home’s structure, personal property coverage can help you pay to replace any personal belongings that were destroyed in the fire, including electronics, jewelry, clothing, appliances, furniture, and more.

Replacement cost value (RCV)

When purchasing home insurance, it’s important that your dwelling coverage limit is high enough to rebuild your home to its original quality if it is completely destroyed by a fire or another disaster.

Replacement cost value (RCV) is the total cost it would take to repair your home to its original state. This value is mostly based on your home’s size and the cost of construction, including materials.

In general, homeowners should set their dwelling coverage limit equal to their home’s RCV to ensure they are able to fully rebuild it if it is destroyed.

Actual cash value (ACV)

Actual cash value (ACV) takes into account your home’s depreciation, meaning it does not pay to rebuild your home to its original quality.

ACV policies are typically much cheaper than RCV policies, but they offer much lower payouts in the event that your home is destroyed by a fire.

Do You Have to Rebuild Your Home After a Fire?

While some homeowners may want to rebuild their homes after a disaster, others may want to use this as an opportunity to relocate.

So do you have to rebuild your home if it burns down?

The short answer is no. If you prefer, you can take your insurance payout and use it to purchase a new home. Though, keep in mind that you will still have to pay off your existing mortgage first.

If you do choose to rebuild your home, it’s important to consider all the costs that this process includes. In addition to construction materials and labor, you may also need to consider the costs of debris removal, mold removal, and landscaping to repair your home’s exterior.

Replacement cost value policies should cover most or all of these expenses; however, if you have an actual cash value policy, you may have to cover some of these expenses out of your own pockets.

What to Do if a Fire Burns Down Your Home

If your house burns down, it’s important to know what steps to take to help you and your family get back on your feet.

After a house fire, you should:

• Find a safe place to stay. If your home insurance policy includes loss of use coverage, it should help pay for temporary living costs, so be sure to keep receipts for your living expenses.
• Contact your insurance company. Call your insurance agent to start your claim. Your insurance agent can help walk you through what steps to take to file your claim and start rebuilding your home.
• Request a copy of the fire report. Obtaining a copy of the fire report from your local fire department may make it easier to file your claim and provide necessary information to your insurance agent.
• Recover your personal belongings. Your insurance policy should pay to replace some or all of your personal belongings that were destroyed in the fire. Create a comprehensive list of what was destroyed, when it was purchased, and how much it cost.

Keep in mind that you’ll have to continue paying your mortgage while your home is being rebuilt or repaired. Your insurance policy should also cover your mortgage payments, but you should also make plans to cover your car payments, credit card payments, and other bills.