Understanding the Claims Process for Homeowners and Renters Insurance
From businessinsider.com
by Ronda Lee, 11/26/21
Damage to your home or possessions must be caused by an insurance peril to qualify as a valid claim.
Your deductible and policy limits impact the amount of your reimbursement.
Payment may be sent to you, your lender, or contractor depending on the claim.
See Insider's guide to the best homeowners insurance companies.
Homeowners insurance protects your dwelling and your personal belongings and offers personal liability coverage for injuries that happen on your property. It can also provide additional living expenses if you need to temporarily relocate.
Renters insurance has personal property coverage if your belongings are damaged and personal liability coverage if someone is injured in your rental. It also provides "loss of use" coverage if your rental becomes unlivable due to damage.
Unfortunately, most homeowners and renters don't understand what qualifies as a valid claim until after they experience a loss. It's worth taking the time to understand how insurance claims work so you aren't surprised by your payout in the future.
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What qualifies as a homeowners or renters insurance claim loss?
In order for your claim to be covered by homeowners or renters insurance, damage or loss must be due to an insurance peril. A peril is an event that may damage your home or belongings, like theft, fire, or a storm.
The type of peril coverage you have depends on the homeowners insurance based on your dwelling type: condo, home, mobile home, renter, townhome, or new construction.
There are eight types of homeowners policies based on the type of home you have. However, they fall into two categories: named perils and open (all) perils.
Most policies are named-peril coverage, meaning you're only covered for listed events. Open peril coverage includes named perils and is more expansive covering anything not specifically excluded in the policy.
Earthquakes, floods, government seizures, mudslides, ordinance updates, sewer backups and sinkholes are not covered by homeowners or renters insurance and require additional riders or separate coverage.
Also, damage from negligence or improper maintenance is typically not covered. Consider a home warranty for regular equipment or appliance repairs.
Understand your policy limits and deductibles
Homeowners are responsible for repair, maintenance, and damage to their home and its structure. Homeowners insurance protects the home and structures under dwelling coverage.
Because renters don't own the property, the landlord is responsible for the building and common areas. So unlike homeowners, renters insurance does not include dwelling coverage, but it does have personal property coverage for their belongings and personal liability coverage for injuries that happen in their rental.
Your deductible is subtracted every time you make a claim. If you have a dollar amount for your deductible, this would be deducted from your claim. For example, your home is damaged by a storm and the insurance company calculates your loss at $15,000 to repair the damage. If your deductible is $500, the insurance company will pay you $14,500.
If your deductible is a percentage, like 2%, then this amount would be deducted from your claim. If your house was insured for $500,000 with a 2% deductible, you would have $10,000 deducted from each claim. For example, if you have a $15,000 loss, the insurance company would deduct $10,000 from your loss and pay you $5,000.
How to file a claim
Contact the insurance carrier to file a claim in a timely manner.
For homeowners, if your home is damaged, your carrier may provide a list of contractors and offer advice on do-it-yourself tips to prevent further damage. Renters inform your landlord or property management of damage so they can repair it.
If you think your home is inhabitable, contact your carrier before leaving your home. Don't assume "loss of use" or "additional living expenses" will apply until you speak with your carrier.
If theft or loss occurred, you should file a police report as some carriers will require this. If you have separate jewelry insurance and your jewelry is stolen or lost, you will also need to contact that carrier.
Take pictures of the damage before disposal and cleanup.
Beware of price-gouging contractors and door-to-door scammers. Ask contractors for their license and insurance credentials to avoid fraud. If you're a renter, your landlord is responsible for the building and structure.
Prevent further damage to your property.
Don't do something you're not comfortable with/that doesn't look safe. Homeowners insurance has a condition to prevent further loss. Focus on a temporary fix instead of something long-term so your insurance company can properly access a permanent fix by a professional. Renters should have the landlord or property management handle repairs.
If damage is caused by a flood or earthquake, contact your insurance provider for that coverage.
You can call the claims number on your policy or make a claim online on your carrier's website. Many carriers have digital apps to file claims where you can upload pictures of damage for faster processing. You must file your claim in a timely manner or your claim may be denied.
The Insurance Information Institute said that most companies require that you file a claim within a year of your damage. Check with your carrier to find the deadlines to file a claim.
Personal property can be replacement cost or actual cash value
Homeowners and renters insurance policies typically use "replacement cost" when paying out for covered damage. Replacement cost is the cost to replace the item with a new or used product.
Actual cash value (ACV) takes into consideration depreciation of the item. For example, if a five-year-old leather sofa is damaged by fire, the actual cash value considers the age of the sofa. The actual cash value is usually lower than the replacement cost value.
Flood insurance policies typically use actual cash value, but you can pay extra to use replacement costs. Check with your homeowners insurance to see which is used. Some providers offer "guaranteed replacement cost" as a perk.
For specialty jewelry and fine art, you will be covered for the appraised value minus any deductible.
It's a good idea to take inventory of your furniture and personal possessions. Some homeowners insurance companies will have inventory lists for you to complete. If you have riders for fine art and specialty jewelry, you will be required to catalog and provide appraisals for them.
You may receive multiple checks
As your claim is being processed, your initial check may be a portion of the insurance companies' estimated loss. The Insurance Information Institute said that "even if you have a replacement value policy, the first check you receive from your insurer will be based on the cash value of the items."
This is because to receive the replacement value, you need to actually replace the items and show receipts as proof of replacement. Once you submit the receipts to show replacement, then you will receive another check for the difference.
If you have a total loss, where your home or belongings are damaged beyond repair, then your insurance company will generally pay policy limits.
Also, if you filed a claim for additional living expenses or loss of use because you needed to relocate, you may receive a separate check.
Remember that flood and earthquake insurance is separate coverage, so if you file a claim with them, there will be separate checks.
Payment may go directly to your contractor or mortgage lender
If you have a mortgage, your lender will require homeowners insurance and may be listed as an additional insured or interested party to protect its loan investment. Therefore, your check for repairs may be made out to you and your lender. Your lender's interest is to make sure repairs are properly done.
The Insurance Information Institute said that "lenders may put the money in an escrow account and pay for the repairs as the work is completed...[and] may want to inspect the finished job before releasing the funds for payment to the contractor."
If you don't have a mortgage, some contractors making repairs to your home from an approved claim may ask you to sign a "Direction to Pay." This means that instead of the insurance company sending payment to you, it sends the payment directly to your contractor. If you agree to have payments sent directly to your contractor, you should keep the insurance company informed if the contractor hasn't completed the job before issuing the final payment.
Different homeowners insurance companies have varying policies. Talk to your agent to find out how claims are handled when you have a lender or the contractor wants direct payment.
