Understanding The Insurance Claims Payment Process

How and by whom are you paid? Who gets the paycheck? Do you require a replacement immediately? Find out here.

As you make temporary fixes, make permanent fixes, and replace your damaged items, you want to get back to "normal" as quickly as possible. You can expect to receive multiple checks from your insurance company as you make temporary repairs, make permanent repairs, and replace damaged items. Here's what you need to know about insurance claim payments.

The initial payment isn't final

An insurance adjuster will examine the damage to your property and offer an amount for covered repairs, based on the terms of your homeowners policy. The first check you get from your insurance company is usually an advance against the final settlement amount.

If you're given the option of settling a claim on the spot, you can enter a check at that time. Later, if other harm develops, you can reopen your claim and file for more damages. Most policies stipulate that claims be filed within a year from the date of disaster; check with the state insurance department for the laws that apply to your area.

You may receive multiple checks

When the structure of your home and your possessions are damaged, you receive two separate payments from your insurance company, one for property damage and one for ALE. If the home is damaged and cannot accommodate you, you’ll receive a payment for additional living expenses. If you have flood insurance and have experienced flood damage, in addition, a second check for it is required.

Your lender or management company might have control over your payment

If you have a mortgage on your house, the loan will be disbursed to both you and the mortgage lender. As a condition of issuing a mortgage, lenders typically require that they are named in the deed and that they are listed as a party to any insurance payments related to the home. If you reside in a co-op or condominium, your condo manager may have requested that the building's financial entity be listed as a coinsured.

The lender with fiscal interest in your property, or the whole building, can facilitate any necessary repairs.

A financial backer that's co-insured will have to endorse the deduction for payment check before cashingit.

Depending on the conditions, lenders may also put the money in escrow and pay for the repairs as the work is done. Provide the mortgage lender your contractor's proposal and let the lender know how much the contractor requires upfront to start the job. Your mortgage company may want to inspect the job done before releasing funds to the contractor.

If your residence has been destroyed, the percentage of the settlement and who receives it depends on the type of insurance you have, its limits, and the conditions of your mortgage. For example, a portion of the insurance proceeds may be used to pay off your mortgage balance. The remainder is then determined by the decisions you make, such as an expectation that you will rebuild on the same lot. They may also be undone or rebuilt in a different place. This determination is based on state law.

Your insurance company may pay your contractor directly

Some contractors might ask you to sign a "direction to pay" form, which allows your insurance company to make direct payments to the firm. This document is a legal document, so make sure you read the whole thing carefully and never mistake the company's request for your whole claim. When in doubt, call your insurance representative before completing this form. Transferring the management of your claim to a contractor prevents you from being part of the process.

Make sure all repairs have been made to your satisfaction before you decide to release the final payment to the contractor.

Your ALE check should be made out to you

The check for additional living expenses (ALE) your checking account gets has nothing to do with costs for repairs to your home. So be certain that the check is made out to you alone and not your lender. ALE is a check you get for expenses you incur while your house is being repaired.

Your personal belongings will be calculated on cash value, first

You will need to make a record of your damaged belongings for your insurance company (coming with a home inventory will make it easier). Even if you have a replacement cost coverage, the first check you get from your insurance company will be based on the cash value of your items, which depreciates to their worth based on the age of the item. Insurance companies try this so that they can assign the remainder of a settlement to the replacement cost of an item. If you decide not to replace a product, you will be paid the depreciated value (less) for it.

To get replacement value for your items, you must actually replace them

Most insurance companies require you buy replacements after insurance covers the cost of damaged items. Your insurer will require evidence of receipts to support the cost of the new replacement purchases, and will compensate you for the difference between the two values. Most folks have a few years to contact the warranty provider about obtaining a replacement; make sure to check with your insurance agent about the exact time frame.

With respect to a guaranteed loss, where the whole home and everything in it are fully damaged or destroyed, insurers typically pay the policy limits, according to the requirements of your state. That way, you will receive the amount your home and its belongings were insured for at the time of the disaster.