Despite our preparations for the ‘what-if’ crisis, the event will almost always be a shock. It’s one thing to prepare for a hypothetical that may not occur and another to face the reality of it.
All the same, laying the groundwork for recovery beforehand lessens the stress. Understanding your insurance claims payment process is essential.
In this article, we’ll take a look at:
- What you need to file and expedite the home claim process;
- How you get paid;
- How long it takes to file a claim;
- And how filing for a home insurance claim can affect your future premiums.
I | Home Insurance Claim and How it Works
Homeowners insurance reimburses you for damages sustained to your home or personal property caused by named perils listed in your policy. These perils or hazards include burglary, vandalism, fire and smoke damage, certain natural disasters, and debris like a tree branch falling and damaging your roof.
Additional coverages include medical payments and legal expenses if a third party is injured on your property.
However, you must file a home insurance claim requesting a payout to unlock the compensations. If everything checks out after filing your claim, you’ll receive the payout amount specified in your policy. But, if your insurance company denies your request for whatever reason, the total cost for renovations and replacements reverts to you.
Why would my claim be rejected?
- Your policy does not cover the damage. Some perils like flood damage, mold, and earthquakes require separate agreements as add-ons to your primary home insurance policy. Damages caused by neglect, along with wear and tear, are not covered.
- The insurance investigator discovers you’ve exaggerated the extent of the damage. On top of an automatic denial, lying and filing a misleading report is considered fraud. You can be fined up to $15,000 and sentenced to up to seven years in prison.
- You missed the deadline for filing the claim. Start the claims process as soon as possible. Deadlines vary from 180 days to 12 months. Check your policy or ask your insurance agent about the time frame given by your insurance company.
- The final renovation or the replacement cost might not exceed your deductible. For example: if you have a $2000 deductible and the total cost of the damage is $1500, you won’t qualify for the insurer’s portion of the payout. Alternately, suppose your deductible sits at $1000 and the total damage costs $2000. In that case, the price is split 50-50 between you and your insurer.
- You haven’t paid your premiums. Only active policies qualify for a claim payout. You lose protection when you need it if you’ve lapsed on your payment. Another thing to consider is how missing premiums chip away your credit score points, hiking up the price of future payments.
II | Home Insurance Claims Process
There is no set time for insurance claims processing. However, the state laws governing insurance payouts set caps on deliberation duration where you live.
Your insurance company must deny or accept your claim within forty (40) calendar days in states like California. How fast you’re accepted or rejected during the deliberation period depends on a few variables:
- Your insurance company and their claims verification and approval process;
- How quickly do you contact your insurance company and provide all the necessary paperwork for smooth and expedited processing;
- The size and type of claim request submitted.
Minor, straightforward claims might go through the paces faster, but there is still no guarantee of how long ‘faster’ may take.
III | Steps for Filing a Home Insurance Claim
The filing process may vary by company, but there are some general steps they have in common.
Before starting the filing process
Before beginning your filing process, you should keep a few things in mind.
1 | File a police report. Don’t delay calling the police as soon as you notice any damages. Whether you’re filing a theft claim or for damages caused by falling tree branches or fires, your insurer will ask for an official police report.
2 | Document the damage. Detail and document the extent and cause of the damage. Relaying as much information as possible upfront reduces the chance of lengthy follow-ups.
While writing your report, stick with the facts. As I mentioned, intentionally misrepresenting damages in an insurance claim is fraud. Include pictures and videos with your report as proof of loss.
3 | Prepare an up-to-date inventory list. The hope is you already started listing all of your valuables and their original prices when you applied for home insurance. If you kept copies of your receipt to go with the list, all the better. Receipts bolster your claim for the costs on your inventory list.
4 | Contact your insurance agent. For further guidance, contact your insurance agent or broker. Discuss your insurance policy and its coverage limits. Are you covered for the damages sustained? If yes, what’s the deadline for filing the claim? Do you require official paperwork from your insurer, like a claim form?
By law, insurance companies must send you all necessary claim forms within a specific time frame after you lodge your initial report. Fill out the required information and return it as soon as possible to prevent lengthy delays.
Take this opportunity to determine if filing a claim makes sense. If the replacement or repair costs fall below your deductible threshold, you won’t qualify for reimbursement. Knowing this upfront will save you time from submitting a dead-end claim.
Depending on the amount, your agent may advise against filing a claim. As we’ll discuss later, filing a claim can increase your premiums.
5 | Make temporary restorations. While waiting to hear whether your claim is accepted or denied, prevent damages from worsening. If holes exist, plug or cover them with plastic sheeting or a tarp. Whatever the temporary fix, keep the receipts so you can be compensated later by your insurer.
After the filing process
Once you’ve gathered all the required information to file a claim, you can begin the process. This stage is more manageable if you are prepared beforehand with all the necessary documents. Your insurance agent will help you navigate the in-company obstacles.
Here’s what else you’ll need to do.
6 | Prepare for a visit from your insurance adjuster. After you’ve submitted the necessary paperwork to kick off the claims process, prepare for a visit from an adjuster. An adjuster will usually visit your home, where they’ll assess the damage in person and confirm if your policy covers the damages.
The adjuster will interview you and collect all the photos, videos, receipts, and other documentation not submitted in the first instance.
If there is a liability claim, the adjuster will speak with witnesses, lawyers, and doctors, to gather additional information.
Insurers use the adjuster’s report as guidance for assessing your claim. Be honest and open, as any deliberate attempts to mislead the process may land you in trouble.
7 | Consult with a contractor. The final results from your adjuster and insurance company may not fall entirely in your favor. You may receive approval, but the amount falls way below the actual cost for repairs and replacement.
Consult with a local contractor for an estimate, depending on the extent of the damage. Estimates from reputable, licensed contractors could give you some leverage if your insurer low-balls your compensation amount.
Without these pre-prepared estimates, you won’t know you’re even low-balled until you call in your contractor and realize you don’t have enough money for the work.
Knowing the cost beforehand helps you determine if an on-the-spot offer from your adjuster is sufficient. In which case, you’ll receive the check sooner. If you discover additional damages while restoring your home, you can reopen the claim, requesting extra funds.
Note: For additional help in assessing your insurance company’s payout, you can hire a public adjuster. A public adjuster will give an independent evaluation of the cost of the damages and represent your interest in claim disputes.
IV | Home Insurance Claims Payment Process
You may receive multiple checks.
You may receive several checks from your insurance company during the reimbursement process. Each payout covers a specific category of damage. For instance:
- Home repairs;
- Replacement or repair of personal belongings;
- Additional living expenses (ALE).
Most homeowners insurance includes ALE to cover temporary living expenses. If your home is uninhabitable while it’s undergoing renovations, ALE helps you pay for other accommodations in the interim.
Your mortgage lender may control a percentage of the funds.
Most mortgage lenders require that they are named on your home insurance policy. Being ‘co-insured’ means they are entitled to a portion of the payout from your insurance company.
This provision gives the lender leverage to ensure the undertaking of all necessary repairs.
Your lender may put the reimbursement funds into an escrow account from which they’ll pay for repairs. Provide your mortgage lender with your contractor’s estimate and inform them of the upfront deposit required to start the work.
To ensure the repair’s quality, your lender may send someone to inspect the work before paying off the contractor.
If you lose your home, part of your insurance payout may repay the balance on your mortgage. It all depends on your insurance coverage provisions. What’s left will then be given to you.
Your insurer may pay the contractor directly.
Your contractor might ask you to sign a “Direction to Pay” form (DTP). This legal document removes you from the payment process allowing your insurance company to handle everything.
Choose this option after thoroughly reading the provisions and consulting with your insurance professional. Once signed, you give your claim control to a third-party contractor. It’s more convenient if your insurance company handles payments, but you don’t want to sign over your entire claim.
Inspect the work done before granting your insurer permission to disburse the final payment.
Additional living expenses (ALE)
Your claims payout for ALE is outside your mortgage company’s control. Your name should be the only one on the check.
ALE covers car rental, hotel accommodations, meals, and other additional living expenses incurred while you’re displaced during your home repairs.
V | How Home Insurance Claims Affect Your Premiums
The type of claim you file may affect your future rates. These types include:
- Fires
- Hail
- Lightning
- Wind
- Non-weather-related water damage
- Mold
- Theft
- Vandalism
- Personal liability
Fires cause the most significant losses, which reflects the highest premium increases. Hail, lightning, and wind damage can also increase your insurance rates.
How frequently you file for claims pushes up your premiums. It doesn’t matter if those claims are for the home you now occupy or one you owned before. Your claim history, in general, can impact your premium rates.
Likewise, your home’s claim history is another determining factor. It may seem unfair, but your insurer may deem the home problematic if the previous owner filed several claims on the property. This rate-setting may have applied from the start and still holds a shadow over all your claims.
If you’re a new homeowner or preparing to move into a new house, ask a potential seller for a recent copy of their CLUE report. You can’t file for one unless you own the property. A CLUE report will give you the heads up about any financial red flags before you close the deal.
Conclusion
Filing a home insurance claim can be tedious. Doing all the prep work before kicking off the process can speed things up.
Before you file a claim:
1. File a police report;
2. Document the damage;
3. Prepare an up-to-date inventory list;
4. Contact your insurance professional;
5. Do temporary repairs.
Once you’ve submitted your claim request:
6. Prepare for a visit from your insurance adjuster;
7. Consult with a contractor.
Contact your insurance agent or broker for company-specific information on applying for home insurance as a new homeowner and filing claims.
