I recently changed providers for my home insurance and as part of the process, they sent somebody to conduct a driveby inspection of the property to verify that there weren't any factors which would impact the terms of the policy.
Nothing came up from the inspection, but they did send a letter indicating that the policy's coverage for rebuilding was insufficient to cover the costs for rebuilding the property. I'm not sure how they could make such a determination from just a driveby, but for the sake of the question, let's assume that they are accurate.
Currently, my mortgage is around $140k and the insurance coverage provides somewhere in the range of $220k for rebuilding. Furthermore, the tax assessor values the property around $160k.
In the event that a disaster did occur which totaled the building, could I simply take the insurance payout to clear the debris and payoff my mortgage, then use whatever's leftover to buy a different house to live in? This would technically leave my current property's lot vacant, but without improvements I expect the taxes would be minimal and I could simply list it for someone that was interested in building their own house.
I suspect this is the nature of things when somebody burns their business down 'for the insurance money', but is this the case as well for home owner's insurance? For example, can the money only be used to cover costs associated with rebuilding the property, or can it be used for whatever the policyholder wants? With the insurance company low-key asking me to up my policy limits, I'm having a hard time envisioning what benefit there is to do doing so other than to be able to remain in a very similar house on the exact same lot and frankly if something totaled my house I'm not sure I'd want to stay put.