When your home is damaged by fire, there are a number of financial considerations involved. A brief kitchen fire that’s quickly extinguished can still cause thousands of dollars in smoke damage to furniture and walls, while a total loss can mean rebuilding your home from the ground up and replacing all of your belongings.
Managing your finances is an important part of the recovery process. As much as possible, you want to avoid paying more than you need to or going into debt. Your home insurance fire coverage will go a long way toward helping you manage the financial consequences, but it may not solve everything.
These tips can help you manage your money throughout the recovery process.
#1 Understand How Fire Claims Work
First, learn what to expect in the fire claims process. This fire insurance claims and recovery guide explains how your policy breaks down into different types of coverage, the documentation you will need to provide the insurance adjuster, and factors that will impact how much money you can receive as part of your settlement.
#2 Check Your Deductibles
A deductible is an amount you have to pay before the insurer starts to cover costs. It’s often tempting to hike your deductible in order to save on premiums, but that can come at a cost down the road. If you don’t have enough to cover the deductible, you may have to borrow the funds or replace fewer of your belongings.
In some cases, deductibles can be higher for specific losses, especially weather events that are more common in your area. Find out what you can expect to pay in deductibles and plan your money around it.
#3 Pay Attention to Policy Limits
In addition to deductibles, there are also policy limits. If your costs exceed those limits, the insurer will not cover those expenses, which is why it’s so important to have insurance coverage that will pay for a complete rebuild of your home.
During the rebuilding process, Additional Living Expenses (also known as Loss of Use) are an important consideration. This coverage pays for any expenses above and beyond your usual expenditure, such as:
- Short or long-term rentals, as well as hotel or motel costs until you can find a rental;
- Additional costs for meals beyond what you usually spend (i.e., the costs of relying on takeout beyond your family’s typical grocery budget when you don’t have a kitchen);
- Additional transportation costs due to a longer commute;
Be mindful of your ALE policy limits and budget them out appropriately.
#4 Get a Cash Advance
If you can secure a cash advance on your claim, it can help you pay for immediate expenses without draining your own bank account. The amount will be deducted from your final settlement, but at a time when money is tight, it can help you avoid relying on credit cards or borrowing from friends and family to cover your immediate needs.