This shouldn't be your problem, I realize it's family, but still that is your customer. It's there problem.
Perhaps they need to set up a credit line at the bank and when the bank feels like releasing funds they can do towards the credit line your customer is using to pay you out of.
The bank holds the mortgage, there will be something in the mortgage docs that the real property and dwellings must be intact and habitable. Your mortgage docs will not allow you to tear the house down as that is the collateral they are holding against your mortgage. This is why the customer must first notify the bank and follow their procedures for this stuff.
This is why it's not your problem, it can't be, the bank and insurance company have no responsibility to you.