How to get a fair payment from your home insurer

With wildfires in Southern California damaging over 175 homes and over 60,000 homes lost to the epic flooding in Louisiana, many residents of these areas will soon be sifting through what’s left of their property -- and looking to their insurance policies​ to replace what has been lost. 

Most people have never filed a claim on their auto or home insurance, so it’s not like we get a lot of experience doing it. Plus, when you do need to make a claim, it’s typically not the best time in your life. Many insurance companies know this and have special teams in their claims departments who are trained, compassionate and ready to assist.

Before you begin, it’s critical to know how to go about making a claim. Be well informed (read your policy), be prepared (document everything you’ve lost), and you’ll improve your chances of receiving a fair settlement.

But even in the best of situations, it’s not uncommon to find yourself thinking that what the insurance company is offering isn’t fair. If that’s the case, follow these steps to challenge the first settlement offer.

Insurance companies pride themselves on making quick and fair claim payments. They do this because they understand that when their customers suffer a loss of property, they need money to get though the difficult time. So waiting for settlement money can make a bad situation worse. The amount initially paid may be a good-faith estimate of the loss, which is only a partial settlement and will be credited toward the total amount later.

It’s important to know that the total amount your insurance company pays for the covered loss will be determined by three things: the covered risks in your policy, the coverage limits in your policy and a written assessment of the property damage or possessions lost, including the insurer’s cost estimate for each item.

The covered risks and coverage limits are just that. It’s strongly recommended that you read a copy of your policy cover-to-cover and highlight all sections you think apply and all coverage you’re entitled to. Talk with your insurance company about your understanding of the policy, and make sure to get answers to all of your questions.

After you receive the written adjuster’s report, don’t just take it as the final offer. Think of it as a starting point, or a draft that typically doesn’t include all of the costs for which you should be paid. That’s because adjusters usually use a replacement-cost computer program to prepare their reports, and the costs for materials and contractors are often based on regional or national averages.

But actual costs in your location could vary, often being significantly more. Also, the report may be incomplete, with items missing or some specific features of your home not included. This is where you need to be your own best advocate and mark up the report, noting what’s incorrect and missing.  

Also, make sure to understand how a claim payment works if you have a mortgage. When the insurance company gives you a check for home repairs, the mortgage company or bank will also be named as an additional payee on the check. 

You can’t cash this check. Instead, you’ll have to endorse it and send it to the mortgage company. The mortgage company will hold the funds in a “loss draft account.” Then it will disburse the funds to you in installments as required to pay for materials or repairmen.

For this reason, make sure to work only with a repairman or contractor who accepts payments from the mortgage company because they’ll typically have to provide documentation (invoices, receipts for materials, etc.) to get paid.

Be prepared to feel that your requests for covered losses aren’t being responded to fairly, or at all. This is when your written documentation will pay off.

If you don’t think your claim is being treated in accordance with your coverage, file a complaint with your insurance company. The first rule here is to make all complaints in writing. Be complete, concise, professional and polite. Be specific about the problem, make a specific request for resolution, set a response time frame and make sure to copy the complaint to a supervisor or manager who is one level up.

Make sure to ask the insurer if it requires any additional information from you and when it need that info. Finally, include in your complaint that if a reasonable resolution cannot be offered, you’re prepared to file your complaint with your states insurance regulator and that you may also consider hiring an attorney or public adjuster. 

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing 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 and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.