In rare instances, you may file a property insurance claim only to find out that the estimate’s amount exceeded the repair costs incurred. If you’re wondering how to handle the excess funds from your home insurance payout, there are several factors to take into consideration.
Much of this depends on how the payout was handled and what type of claims were made. In some instances, your insurer may pay the contractor directly, so you wouldn’t have to worry about an excess payment. In other cases, however, you may receive a separate check for each type of damage. One might cover the estimated cost to repair your home’s structure, one might go toward additional living expenses and another may be for replacing damaged personal property.
It’s good to understand how to manage all of the claim funds that make up such a complex payout structure.
Why returning a payout does not decrease premiums
Filing a property insurance claim can increase your annual premium once it’s time to renew your policy. However, returning a claims payout or a partial payout won’t help return your premium to its original rate. Your premium is largely based on the frequency of claims, not the amount paid out. Even if you return some of the money, the claim is still part of your insurance history.
Additionally, receiving overpayment for a claim is rare. You may also receive payment in stages, with the final check issued after the insurance company receives a certificate of completion to confirm both the final cost and the actual repairs. You may need to provide invoices and photographs to show that the work is completed. In some cases, your contractor may request a “direction to pay,” which requests they be paid by the insurance company rather than the homeowner. In this situation, you may need to confirm the work was done properly before your insurer pays the contractor the final installment.
What to do with the rest of the payout
How does a payout work?
There are several steps that take place during the payout and repair process. First, a field adjuster will come to your home, take photos of the damage and provide a comprehensive report to your insurer. Then, your insurance company will determine whether the loss is covered, and if so, provide an estimate of the repair costs needed based on your policy’s coverage limits. At that point, you’ll receive an initial payment from the insurance company to start repair work on your home.
Once the work is completed, you’ll submit the Certificate of Completion (COC), which verifies the funds were used to complete the required repairs. If you’re covered for replacement cost value, you’re first receive payment for the actual cash value of your damaged belongings. Then once you submit the COC, your insurer will initiate the release of depreciation funds and pay you for the remaining balance.
Also, remember that your deductible is subtracted from the claim amount you receive from your insurance company. While a higher deductible typically saves you money on your annual premium, it does mean you’ll pay more out of pocket when it comes time to file a claim.
If you fail to complete the repairs outlined by your insurance company, you may be denied future claims. That’s because insurance companies have a legal obligation to provide compensation to restore the building to its condition before the loss.
When is there excess payout on a claim?
There may be some circumstances in which you have leftover money in a claim payout. The adjuster’s estimate takes into account market rates for labor and materials. But those actual numbers can change, and you may experience marginal savings in the repair process. For instance, your contractor may secure wholesale prices, which can lower overall repair costs compared to the initial estimate.
In this situation, there are a few options of what to do with the extra payout funds. Consider the following:
- Upgrade building materials
- Change color or quality of paint
- Redo landscaping outside of your home
These types of upgrades fall within the category of required repairs. You can also talk to your contractor about additional upgrades you can incorporate during the repair process.
Are there deadlines to use your payout?
Insurance payout deadlines depend on your home insurance policy. This is most relevant for policies that include replacement costs. You’ll initially be paid out based on the actual cash value. You won’t receive the final payment encompassing full replacement cost until you submit your Certificate of Completion, showing that you updated those items accordingly. You may have several months to do this, but you’ll need to check with your insurer to ensure you follow their requirements.
What happens if you don’t use the full amount in the payout
It’s best to incorporate an excess payout into upgraded materials during the repair process. However, you can also keep any leftover funds that were already paid out to you by your property insurer.
The exception is if your policy includes an exclusion forbidding you to do so. You also need to make sure you don’t lie about anything to your insurance company; otherwise, you could (either knowingly or unknowingly) commit fraud. You must keep your home up to your insurance company’s standards. If you don’t make required repairs, you could have future claims denied and even lose your policy altogether. It’s best to be honest with your insurance company about leftover funds. You don’t want to intentionally or unintentionally commit insurance fraud, and you also want to stay on good terms with your insurer. Let your agent know there was an excess payout and they can check your policy to make sure there are no restrictions on keeping the leftover funds. Then you can use the claim money with the peace of mind of knowing it’s entirely yours.
Handling an excessive home insurance payout is a rare situation. But it’s helpful to understand how the claims process works in case you find yourself in this situation.