If you’re just about to file a home insurance claim, you may be wondering what goes on behind the scenes. How will you get paid? Who receives the check? What items should you replace immediately? Here is everything you should know about claims payments.
After a disaster strikes your home, you may receive multiple checks from the insurance company to defray the cost of damage. This will help you make temporary/permanent repairs and replace the damaged belongings. Understanding how the payment works will help you get the full value of your claim.
The first payment isn’t final
When your home is damaged by unforeseen events, the insurer will provide money to cover the repairs (based on the terms of the policy). The adjuster will assess the extent of the damage to make sure you receive the right amount. In most instances, the first check is often an advance. If the insurer offers on-the-spot check, you should accept it. It’s often an advance against the total settlement. If the amount is not enough to cover the damage, you can file for additional funds.
The time it takes to settle the claim will depend on how quickly you file the paperwork and the complexity of the damage. Most home insurance policies require that you file for a claim within one year. While it’s hard to know the average settlement time, the best thing is to be in constant communication with your provider. Also, be sure to check how the laws apply to your area.
Receiving multiple checks
The insurance company gives two separate checks if both the house and personal belongings are damaged. Your insurance adjuster will ask how much you paid and the model number of the item. You should keep an updated home inventory to ensure you get the payment you deserve. If you can’t live in the home while it’s being repaired, you’ll receive a check to cater for additional living expenses (ALE). Make sure you keep the receipts to provide proof of the costs. If the damage is due to flooding and you had taken flood insurance, that’s a separate check.
The mortgage lender may have control of the payments
If you have a mortgage, the payment checks may be made to both you and the mortgage lender. This is the case when the mortgage company has an interest in the property. Before lenders grant a mortgage, they require to be named in homeowners’ policy. This makes them part of the insurance claims related to the structure. If you live in a condominium, the management company may require you be named as a co-insured. Having a financial interest in the property ensures the necessary repairs are done. And if a financial co-backer is a co-insured, they must endorse the payment claims.
Depending on the mortgage lender, some pay put claims in an escrow account to take care of the repairs. But before any repairs can begin, you should show your lender the contractor’s bid. Of course, the mortgage company will inspect the job before they release the funds to the contractor. The amount of settlement is determined by the terms of the mortgage, limits, and type of policy. Mortgage lenders should not place the funds in escrow account unless they are informed the work is completed. When payments are made jointly, you can agree to pay off the balance of the mortgage and use the rest for repairs. How you spend the remaining proceeds depends on the decision you make. You can rebuild on the same lot or decide not to rebuild. All these decisions must be within the confines of state law.
The contractor may get the insurance claim check
Once the unthinkable happens to your home, you want the insurance company to process the payments as soon as possible. The claim process can be complex if you have never negotiated it before. It gets even more complicated when you use contractors to repair your home. Some prefer that you sign a `direction to pay’ document. This is an agreement that allows the insurer to pay the company directly. Because it’s legally binding, you should read it before signing. If you’re in doubt, you should seek professional help from the insurance company. When you assign the claim to a different party, you’re taken out of the equation. Before you let the insurer make the final payment, you have to confirm the work is done to your satisfaction.
The additional living expenses (ALE) check should be made to you
ALE provides compensation when you can’t live in your dwelling when it’s being repaired. Since it has nothing to do with the repairs, it should be paid to you (not your lender). The check also covers car rental, expenses for hotels, storage costs, and any other expense you may incur when your home is being fixed. These costs are assessed to ensure they are what you’d expect in a normal lifestyle.
Personal belongings are calculated on actual cash value
When possessions are damaged, you want the homeowner’s insurance policy to cover the loss. The insurance company will ask you to make a list of damaged belongings. You should have a home inventory that includes home appliances, computers, stereos, kitchen equipment, jewelry, furniture, etc. This information will help the insurer settle the claims faster. Be sure to record the model number and keep the receipt. The list should be kept in a safety deposit box. Even if you have a replacement value policy, check whether the settlement is made on the cash value. This is the actual cost of the item that includes depreciation. This brings us to the question, why do insurance companies do this? The goal of an insurance company is to put you back to your financial position before the loss occurred. You should expect the actual cash value of each item.
You should purchase the items to get the actual cash value
The insurance company will require you to purchase replacements before you get a reimbursement. As proof of purchase, you have to submit copies of receipts. The insurer will pay the cash value of the replacement with an item of similar size/quality. You’ll be given several months to purchase the items. If you’re not sure of the time-frame, be sure to consult your insurance agent. When the entire house is damaged, the insurer pays the policy limits. To put it succinctly, you’ll receive a check of the value of your home plus contents before the damage occurred. This will depend on the laws of your state.