Your Guide to Home Insurance Claims, Repairs, and Payouts
In 2019, approximately 5.34 million existing homes were sold. And while you might not expect to deal with any major property damage upon moving into your new digs, the reality is that you never know what Mother Nature might do — or what problems might be lurking just underneath the surface.
That’s certainly a good argument for home insurance. In criminal cases, property damage offenses can turn into class E felonies when the damage exceeds $1,000. But in the event of a disaster or structural problem, you may be able to rely on your insurance company to pay for expensive repairs.
Still, it’s not as simple as you might hope. It’s important to understand the basics of filing a home insurance claim, having repairs performed, and dealing with the monetary payouts to restore the property. Otherwise, you could end up making costly mistakes in the end. Here are just some of the most common questions homeowners have about this process.
What Happens When You File a Home Insurance Claim?
You can’t simply file a home insurance claim each and every time you find something wrong with your home. Normal wear-and-tear — and even some natural disasters, like flooding — typically won’t be covered by your insurance policy. But if your home has been significantly damaged or you’ve incurred a property loss due to fire, wind, or theft, it might make sense to file a claim as long as the cost of repairs would exceed your insurance deductible.
If you choose to file a claim, you’ll typically contact your insurance company first (except in the event of a crime, when law enforcement should be notified before anyone else). You’ll usually need to then fill out some paperwork and wait for an insurance adjuster to come out to your property to inspect the damage. You may also need to make temporary adjustments to avoid further damage before repairs can begin. The adjuster will then offer you a sum of money to cover the cost of repairs. In the meantime, you’ll want to obtain estimates for the repairs and assess whether the insurance adjuster’s offer is satisfactory.
How Are Insurance Payouts Made?
If you feel that the offer is adequate, the insurance company might address the payout in one of a few different ways. In some scenarios, you might receive an advance, which is deducted from the final settlement amount; in others, you might receive the entire payout in one check.
It’s important to note that your insurer might actually be paying for more than the cost of the materials and labor to fix your home. Depending on the extent of the damage and your specific insurance policy, you may receive funds from your insurance company to reimburse you for living expenses, which can allow you to pay for food, transportation, and shelter during a time in which your home is uninhabitable. More than 1 billion people don’t have tolerable shelter, but your insurance company can provide you with a bit of a financial cushion if this scenario should happen to you.
It should also be noted that the homeowner doesn’t always receive the check directly. Some insurers may choose to pay the mortgage lender or even the contractor. You should review any and all documents sent from your insurance company to verify that the funds are being directed properly and that any reimbursement checks, in particular, are made out directly to you.
What If the Payout Doesn’t Match the Cost of Repairs?
In certain instances, the insurance payout could actually be a bit more than the cost of repairs (especially if you’re doing any of those repairs yourself). But it could also be that your insurer doesn’t feel the true cost of your home damage warrants the amount you’ve determined that the repairs will cost.
If your insurance company overestimates the cost of repairs or you’re able to get a deal on the work, you need to be careful about pocketing the leftover money. In some situations, you may be permitted to DIY certain home repairs, but you could also decrease the value of your home in the process. You may also be required to provide receipts to your insurer. To appease your mortgage lender, you might have to forgo cheaper materials and a DIY approach. You might also want to keep in mind that the insurance company might have factored in the costs of future repairs. But if you’ve determined that your insurer has definitively overpaid, you’ll likely need to notify them of this. There’s a chance they could allow you to keep those funds to pay for future work related to the claim, but some insurance companies may require you to return the difference.
On the other end of the spectrum, it’s quite possible that your insurer will make an offer that’s less than the actual cost of repairs. Of course, it’s within their best interest to keep payouts low. You should gather as much documentation relating to the damage and repairs as you can and obtain an independent estimate for the damage. If there’s a big discrepancy between the two estimates, this could help strengthen your case for a higher settlement. In many situations, you may be able to reopen the claim later on to negotiate for more money; however, every state will have its own statute of limitations on these kinds of cases, so it’s important to act quickly.
The reality is that no one wants to deal with property damage or filing a home insurance claim. But when you own property, this may be an unavoidable event. With this information in mind, you’ll at least understand the basic process, know a bit more about what to expect, and avoid costly mistakes.