Insurance companies typically pay claims by direct deposit, electronic check, or printed check. However, the exact payment process and the amount you receive will depend on several factors, including your home insurance policy and insurer, the claim type, the state you live in, and whether or not you have a mortgage.
How insurance companies assess damage during a claim
The claims process starts when you file a claim with your insurance company. Once filed, your insurer will assign a claims adjuster to complete a loss inspection. As part of that process, the inspector will assess your property damage to see if coverage applies, and determine the amount of your claim payment. Depending on your insurer and the damage, the loss inspection may take place as follows:
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An in-person inspection during which the inspector will come to your property to evaluate the damage
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A virtual inspection where the adjuster views videos or a live stream of your damage
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An assessment by a licensed technician or contractor who will send your insurer a report detailing the damage
As part of the assessment, the adjustor will likely evaluate the extent of the property damage, including the affected square footage, the composition of the damaged structure, and any personal items affected.
Tip: Save all receipts related to the damages, including those for any temporary repairs you made to prevent further damage to your home and any estimates for future repairs.
How actual cash value vs. replacement cost claims are paid
The type of coverage you have impacts your claim payout. Your property is typically insured for its actual cash value or replacement cost.
Actual cash value policies account for depreciation. In a covered claim, your payout is based on what the item is worth at the time of loss, not the amount you originally paid for it. Depreciation might be calculated using a formula like this:
R × (E - C) / E = ACV
In the equation:
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R = replacement cost of the item
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E = expected life (lifespan) of the item
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C = current age of the item
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ACV = actual cash value
For example, let’s say you bought a refrigerator for $1,500 with a life expectancy of 20 years. But five years into owning it, your fridge is destroyed by a covered peril, like a fire, so you file a claim. Using the depreciation formula above, you get:
$1,500 × (20 - 5) / 20 = $1,125
The most your insurer would reimburse you in this claim is the actual cash value of the fridge at the time of the covered loss, or $1,125 minus your policy’s deductible.
Replacement cost coverage works differently: Your property is covered for the cost to replace damaged belongings with similar items at today’s prices. So, if your $1,500 refrigerator was destroyed in a covered claim, your insurance company will pay for a comparable replacement up to your policy limits and minus your deductible.
Today, many insurers issue policies with replacement cost coverage for the structure of your home (dwelling) and other structures (e.g., fence, detached garage, workshop, etc.), and with actual cash value coverage for the contents of your home (i.e., Coverage C). However, always check with your insurer to understand the extent or limits of your coverage.
How claim settlements work if you have a mortgage
Mortgage lenders have an insurable interest (i.e., financial stake) in your home, and are often listed as an additional insured party on your homeowners insurance policy. If you file a claim for dwelling coverage (Coverage A) and/or other structures coverage (Coverage B), the insurer may issue your claim payment as a check payable to both you and your lender.
Making claim checks payable to both parties protects the lender by ensuring homeowners use the funds to complete the claim-related repairs.
Your mortgage lender may not sign off on the check until the work on your home is completed and passes inspection. In some cases, the lender may require you to sign the claims check over to the contractor working on your home.
Personal belongings are handled differently. Claim settlements for damage to personal property, such as appliances, furniture, or jewelry, are typically paid to you directly.
How long does it take to get a claim settlement?
A claim settlement can take a couple of days or a couple of months, depending on the severity of your claim and state regulations, among other factors.
Each state sets laws regarding how long an insurer licensed in their state can take to respond to a claim and make a determination. State laws can also dictate how long an insurer has for claim investigation extensions.
Remember, the law in your state may indicate that the clock starts ticking for insurance companies only after they’ve accepted your claim, but that doesn’t include the time it takes you to submit your claim, provide any required documents, or meet with the adjuster. After a disaster, insurance companies can be inundated with claims, which can further impact the process, although some states extend their claims handling deadlines following a disaster to help mitigate delays.
Note that insurance companies may not pay a claim in one lump sum. Instead, they may send an initial payment for a portion of your claim and then make a final payment for the difference.
In some cases, the initial payment will reflect the actual cash value of the loss, with the future payment representing the recoverable depreciation once you furnish a receipt for the replaced item, or an itemized invoice for the repair work.
You may also receive multiple payments if your claim is for different types of damage, such as the structure of your home and other structures on your property. For instance, additional living expense coverage (also called loss of use coverage, or Coverage D), usually provides the first (and separate) payment for large losses.
How to speed up the insurance claims process
The time between filing a claim and receiving a payment can take weeks or months, but these tips can help expedite the claims process.
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Know what your policy covers. Review your homeowners insurance coverage to ensure the damage or loss sustained is eligible for a claim.
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File your claim right away. Most homeowners policies require you to file your claim in a timely manner. File your claim as soon as possible to ensure you meet your insurer’s requirements and receive prompt payment. You can usually submit and track a claim by phone, online, or via the insurer’s app.
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Provide documentation. Record all of the damage to your property and provide your insurer with any police reports or other documents, such as photos that support your claim.
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Gather receipts. Your home insurance company will need copies of receipts for any reimbursement. Consider creating a physical or digital folder to store these receipts so you can easily provide them when requested.
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Stay in touch with your insurance adjuster. Adjusters often handle multiple claims, so follow up with your claims adjuster regularly. Be sure to provide as much relevant information as possible and stay available if questions arise, or if they need to visit your property.
When can you use the money from your insurance payments?
You can use funds from an insurance claim as soon as you get the payment. However, you won’t always receive the funds directly.
If you have a mortgage, your insurer may send the payment to your lender to put in escrow. Your lender will then distribute funds as repairs are made. In other cases, your insurance company might pay contractors directly instead of you.
Can you keep leftover funds after repairs are completed?
Usually, you can keep the remaining claim payment funds as long as the excess amount isn’t the result of fraud, and no policy provisions require you to return leftover funds. Before you decide to keep the funds, it’s wise to check with your insurer and your lender, if you have a mortgage.