Every insurance company is different, and every state has different requirements on claims payout periods. That said, the claims settlement process in general tends to follow these basic steps:
But how is the claim paid for, exactly? And what determines how much you’ll get? This overview will help you answer those questions so you know what to expect when you file a claim on your homeowners insurance policy.
After you file a property damage claim, an insurance adjuster will visit your home to inspect what happened and evaluate the loss. They will consider factors like:
If you have a home inventory, be sure to hand a copy over to your adjuster – it helps expedite the process.
Once the adjuster documents all the damage, they use software to determine the value of the damage based on your home’s square footage and construction materials. They also crunch the estimates and receipts you provide to repair or replace damaged items. Then they take a look at what coverage your policy provides.
Your representative will review your policy with you, from your dwelling coverage to personal belongings and loss of use, and explain what is and isn’t covered and to what extent. The type of coverage you have impacts your claims payout, too.
If your property is insured for its actual cash value, the claim is paid out based on the property’s depreciated value. So say you bought a fridge for $800 10 years ago. Depreciation is usually calculated using a formula like this: R × (E - C) / E = ACV.
R = replacement cost of the item
E = expected life (lifespan) of the item
C = current life of the item
ACV = actual cash value
So if your fridge has an expected life of 15 years, your payout comes to $266.
$800 × (15 - 10) / 15 = $266
On the other hand, replacement cost coverage offers the amount it takes to replace the item with a new, similar item at today’s market rate. So that $800 refrigerator might cost $1,000 today, and that would be what the insurance company allows to replace it.
However, don’t expect that replacement cost payout in one lump sum. Most insurers will pay out the actual cash value of the item, and then a second payment when you show the receipt that proves you’d replaced the item. Then you’ll get the final payment.
You can often submit your expenses along the way if you replace items over time.
Your deductible is the amount you cover when you file a claim. If your loss is less than the deductible, you won’t receive any payment from your insurer.
When your loss is more than your deductible, you’ll receive the agreed upon payment minus your deductible. So say your roof was damaged in a hurricane, and it will cost $15,000 to replace. If you have a $2,000 deductible, your payout would be $13,000. That means you will have to come up with the $2,000 to pay the contractor to complete the work.
Claims may be paid differently if you have a mortgage because your lender has a vested interest in your home getting repaired. Lenders are named as additional insured’s on a policy, and that usually means the check will be issued to you and the mortgage company for the actual structure of the house. Personal property checks are payable only to you.
A check made payable to both of you can be hard to navigate, and that’s the point. The lender wants to make sure that the repairs are done instead of letting a homeowner walk away from a total loss with the payout in hand.
Sometimes, an insurance company will release payments at project milestones. When the work is completed and passes inspection, the lender will sign off on the final check. Chances are the bank will require the check to be signed over to any contractor that is performing the work if the insurance company isn’t working directly with the contractor.
Your state’s insurance commissioner outlines in the homeowner claims bill of rights how long an insurance company has to pay your claim.
For example, in Florida, the insurance company has 90 days from the start of a claim to send a full payment based on the claim’s approval. (We often work much faster than that, though.)
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