How Home Insurance Claims are Paid

I had an interesting question last week from a prospective client. I was explaining personal property coverage on the home insurance quote I’d prepared for them when they asked, “If my house burned down, the insurance company will write me a check for $X to replace all my personal property?” It actually doesn’t work that way. I do believe the question provides a lead into how home insurance claims are paid in light of the tornadoes that struck Garland, Rowlett, and Red Oak in December.

The role of the insurance claim adjuster is to determine what caused the claim, what’s covered by the homeowner’s policy, and to assess the value of the damages. Given the nature of the storms that struck the area on December 26, it was easy to determine the cause of the damage. The majority of home insurance policies cover wind damage, whether straight line wind or wind from a tornado. Unless someone had a fire policy (see, their damage was covered.

In most cases a claim adjuster will not determine the total damage while they are at the home. They’ll usually work through a similar exercise an agent works through when determining a home’s replacement cost, however, their focus is on the cost of materials, labor, and related items to repair or rebuild the home. In addition, the adjuster will address demolition (partial or total), debris removal, the replacement of contents, and loss of use. Let’s address each of these as separate claim categories.

Home Structure: Once the cost of the repair or rebuilding of the home is determined, the adjuster will write a check for a partial payment. Whether the damage is mild, moderate, severe, or a total loss, the amount paid will either be the actual cash value of the claim, less the policy deductible, or a lower amount. It’s usually enough to begin the repair or rebuilding process by enabling the homeowner to secure a roofer or contractor, procure materials, etc. but not to complete the work.

The reason most companies don’t write a check for the entire amount of the claim is to cut down on the incidence of homeowners being taken advantage of and insurance fraud. I advise my clients to turn in all receipts to their claim adjuster as they receive them. This helps streamline the claims process and secure additional funding more quickly as needed.

Personal Property: Personal property, or contents, is everything you brought into your home when you moved in. It includes clothing, furniture, books, computers, TVs, dishes, cookware, kitchen appliances, small appliances, tools, lawn and garden equipment, and much, much more. Your adjuster will ask you to prepare a list of what you owned and its cost. They may ask you for receipts or some other form of evidence (pictures, video, etc.) showing you owned what you are claiming.

Any payment the adjuster provides will be partial. Like the home payment, it will get you started, but it won’t replace everything you claim. You’ll need to submit receipts to be reimbursed for the items you purchased. The key to making this process go smoothly is having some level of documentation on what you own and I’ll talk more about that next week.

Loss of Use: If your home is unlivable, you’re going to need a place to live. This could be for a few weeks, months, or much longer. Many insurance companies have a temporary housing unit that has arrangements with hotels and extended stay residences for short term stays, and apartments for longer term stays. Rent payments may be made by the insurance company’s claim department to the hotel or apartment, or reimbursed to the homeowner until the home is ready for the family to move back in.

I’m reminded, as I write this, of why it’s so important for people to have an emergency or rainy day fund. Having that in place makes it much easier and faster to go through a major claim process as this. What do you suggest? Share your comments, questions, and suggestions with me on my Google +, Facebook, and LinkedIn pages. I’d love to hear from you!

Evie Wise
Evie Wise


Evie Wise
Evie Wise

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