Homeowner's Insurance Settlement

How is the settlement amount determined?

When a person has an insurance claim one of the most pressing questions they have is "how much will the insurance company pay me?" There is an entire section of a homeowner's insurance policy that deals with this subject. There are three important topics to consider that govern the amount of the settlement.

The first and most evident provision deals with deductibles. A policy deductible is an amount that is subtracted from the loss and you are required to pay this amount yourself toward the damage. It is typically deducted from a settlement check.

The second issue that governs the amount that an insurance company will pay is the limits of your policy. These limits are established by your agent when the policy is written. The policy limit on your house will govern the amount of coverage that you have on many of the other coverages on the policy, such as other structures, contents, and additional living expenses. These limits are typically set as a percentage of coverage A that is the building coverage. It is important to note that you policy will not pay more than the policy limit.

The third provision of you policy that governs the amount that your insurance policy will pay is a bit more confusing. The payment may depend on whether you have a replacement cost policy or an actual cash value policy. If you have replacement cost, the insurance company will pay the full amount to repair or replace the full damage caused by a covered cause of loss. Actual cash value is defined as replacement cost less depreciation. For example is generally accepted that a roof can last 20 years. This means that if you have a roof that is 10 years old it has lost 50% of its value due to depreciation. If you have an actual cash value policy, the insurance company and your contractor may write up an agreed estimate to replace the roof in full, and then the insurance company will apply the appropriate amount of depreciation and pay you in this case for 50% of your roof. With a replacement cost policy, the insurance company will still depreciate the roof and pay only for the actual cash value amount of the loss upfront. Your claim for the replacement cost coverage generally can then be made once the repairs are actually completed. A homeowner's policy typically states that you have 180 days after the date of loss to make your claim for replacement cost and the depreciation can then be collected.

Along with replacement, cost coverage comes another issue called coinsurance. Many policies will have a coinsurance requirement. This requires a homeowner to carry at least 80% of the home's value in coverage. This means that if your home is worth $100,000 you will be required to carry $80,000 in coverage on the dwelling. If you fail to maintain the proper amount of coverage, you will be penalized in the event of a claim. The penalty will be proportionate to the amount of coverage you should have had. For this reason it important to make sure your policy is updated regularly and the policy limit is maintained with 80% of the replacement cost value of your home.

Get Free Home Insurance Quotes Now