Can you keep home insurance claim money?
Fact-checked with HomeInsurance.com
When you file a home insurance claim, your insurance company reimburses you for the projected cost of repairs. You might be wondering if you can keep any money that’s left over after the repairs are made. The answer depends on a few factors. Keep reading to find out who typically gets the payout after a home insurance claim, how the claim process works and what happens to leftover insurance money.
Who gets the payment in a home insurance payout?
Many homeowners assume they automatically receive the payout following a home insurance claim. However, that’s not always the case. According to financial expert, Laura Adams, “Claims for your personal belongings or additional living expenses (such as hotel and meal costs) if your home is uninhabitable during repairs are separate funds made payable to you.”
But in some situations, you might not be the recipient. “However, if you have a mortgage, your insurer’s payments for home damages may be made payable to you and your lender. You may need to endorse the payment and place it in escrow until the work is completed and approved for payment,” adds Adams.
Ultimately, that means that several people can receive the payout after a home insurance claim. Here are the people who could potentially claim insurance money after a loss:
- The homeowner: If you fully own your home, you will most likely get the insurance payout directly. You are responsible for paying for repairs or hiring a contractor to make repairs for you.
- The mortgage lender: If you have a mortgage, your insurance company may give the money to your lender. You will need to work with your mortgage company to get the money, and they might request to oversee the repairs.
- The property management company: If you own a condo, it’s possible that the check will be sent to the condo association or property management company. You will need to request the funds and potentially work with the company to make approved repairs.
- The contractor: Some insurance companies pay a contractor directly after a claim, and completely bypass the homeowner. This is common if your insurance company works with a network of professionals for home repairs, or if you have assigned the claim to your general contractor to manage on your behalf.
How the homeowners insurance claim process works?
Getting paid after a homeowners insurance claim is a multi-step process. It can sometimes take weeks or even longer to settle on a repair estimate, depending on the extent of the damages. Also keep in mind that every carrier has its own protocols.
“Home insurers handle claims payment in different ways, depending on the claim amount, your mortgage lender’s requirements and the extent of damage to your property. After you make a claim, an adjuster typically inspects your home and estimates payout based on your homeowners insurance policy terms and limits,” says Adams.
Here is a general overview of the homeowners insurance claims process:
Assess the damage
After you file the claim, the insurance company will send a claims adjuster to assess the damage in person. They will gauge the extent of the damage and figure out how much the repairs should cost based on market rates for labor and materials, plus any overhead or profit for the contractors (as applicable). The adjuster might visit your home and meet with an in-network contractor to get a second opinion and determine the insurer’s final estimate.
Estimate the cost of repairs
Once the evidence has been gathered, the adjuster and contractor will consult about the estimated payout. For a small claim, this process could take a matter of weeks. For more extensive claims that will require a bigger payout, the process could take much longer. During this time, you can also get your own assessment from your general contractor and compare the payouts to determine whether the estimate is accurate to the scope of required repairs.
Receive the payout
Once your insurance company has settled the claim and a final estimate for repairs is agreed upon, you’ll receive an initial payout. Depending on how you set this process up with the insurance company, it will either arrive in the form of a mailed check or as a direct deposit to the intended recipient. For replacement cost value policies (RCV), a second amount — known as depreciation — is released after a certificate of completion has been submitted to the insurer, verifying the required repairs have been completed.
What if there are multiple payouts that need to be made?
In some cases, you might receive multiple checks stemming from one claim. This is particularly common when you need to use several different coverages. For instance, if your home is ravaged by a hurricane, you might receive one check for the exterior damages, another check to replace lost personal items and a third check to pay for additional living expenses during construction.
There could also be another check written to a contracting company for home repairs. But chances are, you’ll never see that money. According to Adams, “Some contractors may request a “direction to pay” form that allows your home insurer to pay them directly. This arrangement means that you legally assign your claim payment to the contractor and are removed from the process. Be sure you fully understand your rights before giving control of a home insurance claim to a contractor.”
This direction to pay form is also often referred to as an assignment of claim or assignment of loss. For large loss claims, many homeowners opt to have their trusted general contractor handle the entire claim and repairs start-to-finish, but this choice is a matter of preference.
Can you keep leftover money from a home insurance claim?
Technically, you are allowed to keep the leftover money after a home insurance claim. That’s assuming there is nothing written in your policy about returning unused claim money. As long as you did not commit insurance fraud or lie to your insurance company to get the money, you should be able to keep any remaining balance.
Generally the claim amount is based on a projected cost for repairs but market prices and fluctuations in wholesale rates means that sometimes repairs are cheaper than initially estimated. Typically any excess of estimated repairs is put towards upgraded materials and minor cosmetic choices that fall within the scope of required repairs.
However, lying to your insurance company about how much the repairs cost just to keep the leftover funds is classified as fraud. In addition to it being illegal, the consequences with your insurer are significant. If you don’t make the required repairs and complete them to the insurer’s satisfaction, any future claims may be denied. Plus, the insurance company has the right to terminate your policy.
What to do if you do not like the offer made by the insurance company
In some situations, the insurance company’s payout might be less than what you expected. Before you accept the money, you have the right to negotiate with your insurance company to get a higher, more accurate payout.
If you had your own contractor assess the damage and estimate the repair costs, that can provide comparative context for the carrier to adjust their estimate accordingly. Requested adjustments to your estimate typically fall within the category of ensuring all repairs within the scope of what is owed are accounted for, in addition to ensuring manufacturer requirements are not overlooked. Avoid “padding” your claim by making it seem more extensive than it really is, as the total claim payout can affect how much your rates increase later.
Underpayment on a claim
Only contest a claim if it is significantly less than what one or more contractors quote for the necessary repairs, or if something critical is left unaccounted for — such as solar panels on a roof claim.
Negotiating for a higher claim payout isn’t always in your best interest. It can lengthen the time for the claim to be settled and repairs to actually take place. And if you have an actual cash value policy, and you try to get a payout for your home’s replacement cost, you probably won’t win that battle.
If you’re dealing with a minor claim, it’s better to take the money and make the repairs. In most cases, contesting a claim won’t even need to be a concern unless you are involved in a large-loss claim area and adjusters spend very little time on inspections. This can happen in cases when an entire state is affected by a devastating hurricane and carriers are shorthanded in adjusters to perform thorough inspections.
- After a claim, you can keep the leftover money, as long as you didn’t lie and inflate the cost of repairs.
- The insurance company doesn’t always pay the homeowner directly after a claim.
- You may receive several checks following one claim if there are multiple losses, and depending on the policy type.
Insurance claim payouts can be complicated. As the homeowner, there’s no guarantee that you’ll receive the check for repairs yourself. It depends on your mortgage lender and the insurance company’s policies around hiring contractors. In any situation, you can technically keep leftover money after a claim payout. Just be sure you’re not committing insurance fraud or lying to your insurance company about the cost of repairs, which is illegal.