Many contractors are honest, but some may overcharge insurers for their work.
Many people want as high a settlement amount as possible when they file a homeowners insurance claim, but always looking for more money can actually hurt you in the long run. Insurance companies assign premiums based on anticipated losses of a certain amount. If the actual losses consistently exceed that amount, the premiums will be insufficient to cover the losses, and everyone's insurance cost increases as a result.
Nature of Claims
Homeowners insurance contains liability coverage, but it primarily covers your home and its contents. Many claims are for property damage, and insurers agree to pay the value, repair cost or replacement cost of the damaged property, depending on your policy and the nature of the loss. Insurers don't perform the repairs directly; rather, they pay professionals to do the work. Because they don't directly control the cost of the claim, they must monitor the work to ensure the professionals don't charge too much.
Role of the Adjuster
Each claim has at least one adjuster assigned to it. The adjuster's job is to investigate the facts of the claim, verify that it is covered by the policy and authorize the necessary payments to settle it. They protect everyone's premium rates by making sure each claim doesn't cost more than the insurer anticipated. Occasionally, contractors try to charge more than the insurance company feels is reasonable, and the adjuster must reduce or deny payment for those charges.
Direct Repairs
When insurers work closely with contractors to repair a home, the chances of overcharges or denied payments is minimized. Insurers typically have contractors they prefer to work with because they have pre-agreed to certain repair procedures at stated costs. Even if a contractor is not a preferred vendor, he can typically still work with the adjuster directly to get pre-authorization before he performs the work. Payment denials come mostly when contractors perform work and then charge more, retroactively, than the insurer is willing to pay.
Cash-Outs
If you do not have a mortgage on your home, your insurer may offer you the option of cashing out your claim. This means you accept a settlement check with no promise or anticipation of repairs. If you choose to do the repairs later on, it is your choice and not the insurer's responsibility, because your claim is already closed. While this is good for customers who just want money and not repairs, it increases the chances of overcharges and payment denials if you do the repairs later on.
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