Insurance Settlements: Challenge the First Offer

Last Updated Sep 15, 2011 3:01 PM EDT

A few days ago I wrote about how to approach making an insurance claim. Before you begin, it's critical to know how to go about it. Being well informed and prepared can improve your chances of receiving a fair insurance claim settlement.

In that column, I stressed the importance of gathering documentation, and how to go about it. Once the loss is assessed and the claim is quantified, it's not uncommon to find yourself in a position of having to challenge the first settlement offer from the insurance company.

The First Offer
After an Adjuster inspects your loss, they'll prepare a written assessment of the damage that needs to be repaired or items to be replaced and their estimate of the costs for each item. It's important to know that adjusters typically use a replacement cost computer program to prepare their reports and the costs for materials and contractors will be based on regional or national averages. The adjuster will provide their report to the claims supervisor, who will then quickly issue you a check based on the coverage in your policy and the adjusters report.

If you have a mortgage, the mortgage company or bank will also be named on the check. You will be required to endorse the check and send it to the mortgage company. The mortgage company will hold the funds in a loss draft account, to disburse the funds to you in installments as required to pay your contractors/builders.

Review Adjusters Report Carefully
When you receive the first check from the insurance company, do not deposit it or send it to your mortgage company until you have carefully reviewed the adjusters report and agree with all items and costs. Look for things such as missing items, partial or incomplete measurements and low-balled contractors costs. In local markets where builders and skilled labor are in short supply, the regional costs used in the adjuster's report may be significantly less than what it will actually cost to replace what you had before the loss. If this is the case, do not agree to accept the first offer from the insurance company. The insurance company will recommend that you do and that you can later bring additional items to their attention and they would make supplemental claims later. Instead, return the first check and request that the adjuster revise the report and request a check from the insurance company for the correct cost of the damage.

How to Complain Effectively
At times, you may feel that your requests for covered losses are not being responded to fairly, or at all. It is in these times that your written documentation will pay off.

Make all complaints in writing: be complete but concise, be professional and polite. Be specific in your written complaint as to the problem, make a specific request for resolution, set a response time frame and make sure to copy the complaint to the person one level up. Make sure to ask the insurer if they require any additional information from you and when they need it. Finally, include in your complaint that if a reasonable resolution cannot be offered, that you are prepared to file your complaint with your state insurance regulatory agency. To find your state insurance regulator, log on the web site for the National Association of Insurance Commissioners.

Check back in a few days when I'll write about what to do if there is a large difference between what the adjuster says the insurance company will pay and what you believe should be paid under your policy.
  • Ray Martin

    Since 1986, Ray Martin has been a practicing financial counselor, providing valuable and practical financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch, and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.

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