Q

Can you keep the money from a homeowners insurance claim?

A

Any excess home insurance claim money that you end up with is legally yours as long as your insurer doesn’t ask for it back or you didn’t commit insurance fraud for the additional amount.

If your homeowners insurance claim is accepted, your insurance company will payout for repair or rebuild costs. It’s possible your insurer will overestimate the cost of repairs or new items and you’ll have excess funds from your claim payout, which may leave you wondering if you’re entitled to keep that money.

The answer is yes, technically, any leftover home insurance claim money is yours as long as the payout was used for its intended purpose and you didn’t do something shady like submit a false claim. But it really depends on how the claims process works with your insurance company, who receives the payout after a claim, and the insurer’s rules around keeping leftover insurance money.

KEY TAKEAWAYS

  • It’s possible that you’ll end up with leftover money from a home insurance claim money if a house repair or rebuild came in under budget

  • If you have leftover claim money after the designated repair work is completed, you’re technically entitled to that money if your insurer doesn’t ask for it back

  • In many cases, your mortgage lender or contractor, not you, will have control over how the home insurance claim money is used

How does the home insurance claim payment process work?

The homeowners insurance claim payment process will look a little different from company to company, but you can generally expect the following.

1. A damage assessment and estimate

Once you file a homeowners insurance claim, your insurer may send an adjuster to your home to inspect the damage and make sure everything on your claim is covered by your policy. Once the damage is assessed, the insurance company will send over a damage estimate.

You can either approve of the settlement amount or dispute it if you suspect that they underestimated the damage. If you feel you’re being lowballed by your insurer, having a separate damage estimate from a licensed contractor will improve your chances of increasing your claim payout.

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2. Your initial claim payment isn’t final

Once you’ve agreed to a settlement amount, your insurance company will send the payout to either you, your mortgage company, or your contractor (more on this momentarily). There’s a chance your insurer will only pay out a portion of the claim initially, as an advance against the total settlement. Oftentimes, this amount is made for temporary repairs or cleanup before the larger repairs or rebuild process begins.

3. You’ll receive multiple checks for claims involving different parts of your policy

It’s also important to note that you’ll often receive multiple settlement checks for different parts of your policy for which you’re filing a claim. For claims involving the structure of your home, for example, you’ll receive a separate check for repairs or a rebuild up to the dwelling coverage limit in your policy. If the same claim involves damage to your personal belongings and additional living expenses, you’ll receive two separate checks under the personal property and loss of use provisions in your policy.

Insurance checks for losses involving your personal belongings and additional living expenses are typically made out to you, but claim payouts involving your home work a little differently, as we’ll discuss more below.

Can you keep leftover home insurance claim money?

Generally speaking, any excess money that you end up with is yours, as long as the insurance company doesn’t ask for it back or you didn’t commit insurance fraud by lying about the extent of damages to your home. If your insurance company pays you directly after a loss and nothing is written into your policy about returning leftover claim money then yes, you may very well be able to keep the excess amount.

If the settlement amount is significant or used for, say, a complete rebuild of your home, your insurance company may request an inspection of the premises to ensure claim funds were used for the required repairs. If the settlement was used appropriately and you have leftover money, your insurer may let you pocket the remaining amount, assuming you don’t have an exclusion in your policy that forbids you from doing so.

Some insurance companies are more hands-off than others in terms of how loss settlement money is used. Chubb, for example, gives policyholders the option of cash settlements after a total loss. That means if your home is completely lost in a fire or similarly grave disaster and you decide not to rebuild or rebuild at another location, they’ll give you the cash value of the rebuild instead, up to your policy limit.

Who gets the money from a homeowners insurance claim?

It’s possible that your mortgage lender or repairs company, not you, will be the recipient of your home insurance claim money. This will depend on the insurance requirements in your mortgage contract and the details of your policy regarding how claims are paid out.

Many lenders will actually require that they be named as a loss payee on the insurance policy. If that’s the case, your lender will generally place any claim money into an escrow account and pay the contractor as repairs are completed.

Your insurance company may also pay the contractor directly after a homeowners insurance claim. Some builders and repairs companies may ask you to sign what is called a “direction to pay” form that allows your insurance company to pay them directly, according to the Insurance Information Institute. If you’re asked to sign something of that nature, make sure you’re not handing control of the entire claim over to your contractor.

Homeowners Insurance Expert

Pat Howard

Homeowners Insurance Expert

Pat Howard is a homeowners insurance editor at Policygenius in New York City. He has written extensively about home insurance cost, coverage, and companies since 2018, and his insights have been featured on Investopedia, Lifehacker, MSN, Zola, HerMoney, and Property Casualty 360.

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