Understand the Home Insurance Claims Process
Let’s say something bad happens to your home, and your home insurance covers the loss. The insurance company will have an adjuster first inspect the damage. Then, the insurance adjuster will offer you an amount of money for repairs. Your homeowners insurance policy will specify the amount and any limits. The amount in your first check is typically an advance and not the final payment. This part is crucial to know. That first check goes against the final settlement amount. Let’s say the total amount is $20,000. At first, you may receive an initial amount. In this case, let’s say it’s $15,000. In this case, you would receive another $5,000 check to pay the contractor for the final settlement amount for labor and materials.
In some cases, the insurer might offer a total and final settlement amount in one full check. You might find the check satisfactory if the cost of materials and labor is about the same. Know that you can always reopen the claim later and file for extra money. If there is additional damage previously not discovered by you or the claims adjuster, you may get the green light. Note that your policy will likely require you to file a homeowners insurance claim within a year of the event.
Is the Initial Payment by the Insurance Company Final?
You Might Get Multiple Insurance Claim Checks
Many homeowners are surprised when they receive two separate checks from the insurance company. There are checks for each category of damage. Let’s say your home becomes uninhabitable. You’ll get a reimbursement check for additional living expenses (ALE). ALE coverage comes in handy when you have to live elsewhere during repairs and need to pay for things like food and transportation. Or you might have separate flood insurance or earthquake insurance and experience damage. Flood insurance and earthquake insurance are not included in your home standard insurance policy. So you’ll get a separate check if you have either additional policy.
What Your Lender Might Have Control Over
You likely have a mortgage on your home. And if you do, your insurer will write out a check to you and your mortgage lender. The lender gets a check because they are often named on your policy as a party to any insurance payments.
The same applies to co-ops and condominiums. Management companies require the building’s financial entity to be written in your policy as “coinsured.” You may wonder why these entities have a financial interest in your property. The truth is, they want to see to it that only the most necessary repairs are made on your home. The financial backer will often have to endorse the insurance money check before you’re allowed to cash it.
Sometimes, lenders place the money in an escrow account. From there, the lender will pay the repairs while work is being done. If you show the lender the contractor’s bid and how much the contractor wants upfront, they can complete the job in the most timely manner. Sometimes, mortgage companies will require a home inspection of the final job before releasing the money for payment.
Your home might be destroyed and be a total loss. But your policy type, policy limits, and mortgage terms will determine the settlement amount. Sometimes, a portion of insurance money may be used to pay off the balance on your mortgage. It’s up to you to decide how much of the money left over from the insurance claim to spend. For instance, you may or may not choose to rebuild on the same lot. Or maybe you want to rebuild it in a different location. You could even decide not to rebuild at all. But know that you’ll have to base your decision on your state’s laws.
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