How to Use Home Insurance Claim Money: A New Mindset

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Not board game money…

Your house is in shambles. Yet, when you rip open the first check of home insurance claim money out of the envelope what is your first thought?

Run away on a month-long vacation to Hawaii drinking piña coladas in coconuts with a fancy little umbrella on top!

Of course you’d still have to come back to reality and live somewhere. So as much fun as Hawaii might sound, reality hits and the rebuilding process starts.

First, read your insurance claim and make sure that you’re following all the steps. For instance, if you are cleaning up after a flood first you need to do remediation. After ripping all the wet drywall and cabinets out, the remaining structure needs to dry out along with treating it with the proper chemicals. You want to be absolutely sure mold doesn’t grow once you seal all the walls back up.

However, after that it’s game on!

/* NOTE: For the remainder of this article imagine your house is in a flood and is currently gutted all the way to the ceiling. The kind of flood that rolls through an entire neighborhood. Not the kind where you go on vacation and your washing machine water line bursts five minutes after you walk out the door. */

Some people might want to just have their houses back the way it was. That is what insurance is for: “like, kind and quality”. Just get a general contractor in the door, hand over the keys, the home insurance claim money, and good faith.

While there is nothing wrong with this approach: BEWARE! Make sure you are placing your trust in well vetted contractors. I truly hope you have a good and honest general contractor and not one like this.

Also understand there may be delays and valid reasons for slow progress at times. Remediation can take a long period of time. It appears nothing is happening except watching a little LED number tick downward on expensive dehumidifiers while the tornado winds created from high powered fans dry the entire house. Sometime later in the rebuilding process there may be a time where there just aren’t enough electricians to finish a certain step because the demand in the area is so high. There is the need for inspections from your local building authority, too.

Before you decide to proceed down that path of handing over the keys and check out until they are handed back–take a moment to step back and try out a new mindset.

Is there anything you want to change to make your life better in this house?

This is your one chance where you are not entirely funding the remodel.

Of course, drywall still needs to go up and a kitchen needs to go back in place. But a layout change could make your house work for you! Is your kitchen range location an emergency room visit away from tragedy? Your home insurance claim money is going to pay you for a new range anyway. Maybe you have to pay a little extra for an electrician to run a new line since that is above and beyond the home insurance claim money. But it is well worth every penny!

This is also the time to take extra care to address other hidden issues that are perhaps not the immediate concern. Consider items like tiling the entire kitchen so the footprint isn’t permanent. When your washing machine line bursts you rip out the cabinets, don’t touch the floor* since the tile goes all the way to the wall, and put in the new cabinets. Who cares if the new cabinets are thinner than the old ones? Not you.

But if you DID NOT tile all the way to the walls this time you would care. Why? Because that one inch gap between the tile and the old cabinet to the tile and the new cabinet looks awful.

Could you raise your house and put yourself in a different class of insurance? For instance, by raising your home ABOVE the Base Flood Elevation (BFE). Then, you may reduce or eliminate your catastrophic flood risk. The National Flood Insurance Program may reevaluate your home to see if you qualify for lower premiums (your house is now above the flood zone).  If you are able to self-fund, get an SBA (Small Business Administration) loan, or other means of payment your savings in premium and the loss of your things and displacement for the NEXT event could be worth the sacrifice. You could become a helper and not the person in need again.

The difference in the insurance premium could be a savings of major $$$ per year! Now think about that after a few years of saving the difference. Now you can go to Hawaii!!!**

You know who else will care about that insurance drop, peace of mind from flooding, and the extra parking space below the house? The next homeowners. And they will gladly pay for it.

Using home insurance claim money for upgraded finishes.

Are built in cabinets are out of the question due to local demand skyrocketing the price? Or the cabinet maker cannot complete the cabinets until a year from now because they are buried with orders? Remember EVERYONE in the area is also flooded too! Let’s put in some semi-custom all wood (marine grade plywood, not OSB or MDF), dove tail, soft close cabinetry instead. Then top it off with new granite slab countertops–an upgrade from the old Formica counters. Then add some bling with an eye catching backsplash.

Need new appliances? Perhaps you can find an amazing deal on a nicer set for the same price as the original appliances.

Also consider the new materials going into the next flood.

Choosing the right materials keeps the next rebuild shorter and easier. FEMA conducted research on what materials performed well following the weeks of sitting water from Hurricane Katrina in Louisiana. The following technical bulletin goes in to the gritty details of what they recommend on which floor of a structure. It also covers how it impacts your insurance, and construction examples. There is also an attractive nerdy chart on different building materials and if a material is worthy of labeling as “flood damage-resistant”.

https://www.fema.gov/media-library-data/20130726-1502-20490-4764/fema_tb_2_rev1.pdf

Not only is the next clean out easier, but the right materials may also drop your flood insurance premium. Did anyone just order another piña colada?

With the right choices your house can be better than it was for absolutely $0!

Even if you go over the amount the home insurance claim pays, consider your remodel is coming at a HUGE discount. Sure, maybe you threw in few thousand extra, but did you have to put in the other $150,000?

Try to look at this opportunity as a gift. Perhaps it is not one you want, but after the work is done you get to enjoy the updates. And so does the next homeowner.

*Water can seep into the grout and mortar of floor tiles. Remember how we want to use a trowel at a 45 degree angle when attaching tile to the floor/countertop/surface? This allows for small gaps of air under tiles. If the flood is from a nearby river and not a clean water line the contaminated water is in the floor too. All the floor tile has to go. 🙁

**The trip to Hawaii might not happen until after you sell your house for more since the cost of raising a house has a pretty hefty price tag. But the price drop in premium is more than a few tasty Starbucks Frappachino’s every year.