Detailing Home Insurance Claims and Compensation for Your Clients

Some homeowners are lucky enough to not face having to file an insurance claim on their home insurance policy. For most, however, filing a claim for a storm or accident is inevitable. Unfortunately, home insurance claims can be confusing for new homeowners and compensation isn’t always what they expect it to be. 

It is important that insurance agents know how to explain how insurance claims work and how compensation is awarded to avoid confusion and potential frustration on behalf of a client. Filing a claim is a stressful time, and you don’t want your clients even more stressed because they aren’t getting the money they originally expected.

How to File a Home Insurance Claim 

Home insurance clients should be aware of the limitations and exclusions on their home insurance policy. Most policies do not include water damage caused by floods or sewer issues. Earthquakes are commonly excluded. If you offer any of these coverages, be sure to inform clients about the dangers of not carrying it. Floods and earthquakes cost millions of dollars every year in damage to homes. Clients should know when they will and won’t be covered so that they aren’t unexpectedly denied for a home insurance claim. 

How Compensation is Calculated for Home Insurance 

Once a homeowner decides to file a claim, it is important that they know how much compensation to expect. An insurance provider will send out a claims adjuster to inspect the damage and calculate how much compensation is owed to the homeowner based on their policy terms and limits. Make sure homeowners know about the 80% rule in home insurance. If a client carries less than 80% of their home’s total replacement cost value in home insurance, they may not be entitled 

If a homeowner does file a claim and the claim is approved, they will generally receive an advance payment before the rest of the settlement is paid out. These are lump sums that are paid as the claim is processed based on the policy. 

Types of Compensation 

When it comes to personal belongings, there are two main types of compensation a homeowner may receive: actual cash value and replacement cost value. These values are based on the policy itself and cannot be changed while the homeowner is filing a claim. 

An actual cash value policy provides compensation for the current cash value of the items, which accounts for depreciation. So as the value of the homeowner’s belongings go down, so will the amount of compensation they will receive. Homeowners should be encouraged to keep track of their items’ depreciating value, so they are not surprised if they receive less compensation for the items than what they originally paid. 

A replacement cost value policy does not account for depreciation and instead will help replace the lost or damaged item with one of identical or similar value. This type of policy is usually more expensive on the homeowner’s monthly premiums, but it is also more likely to allow the homeowner to replace their belongings after a disaster. 

When a client first signs up for a home insurance policy, make sure they are aware of the different ways they may receive compensation and what each means for them if they need to file a home insurance claim in the future.