How do insurance companies pay out claims? A complete guide.

How do insurance companies pay out claims?

When you purchase a home or auto policy, you do so to have peace of mind that your house and vehicle are protected. You might not need to reach for your insurance policy until there’s an emergency.

You should file a claim if you suffer a covered loss, but how do you do that?

The process will vary depending on the provider. However, there is a general process for submitting insurance claims.

This guide will answer your questions surrounding the insurance claims process and cover the following topics:

Table of contents

• What is a claim?
• What does it mean to file a claim?
• How do insurance companies pay out claims?
• What is the insurance claim process?
• How long does it take to receive payment?

What is a claim?

An insurance claim is a payment request from a policyholder to an insurance provider after they experience a covered loss.

For example, if a fire damages the policyholder’s home and the homeowner has insurance, they will file a claim to ask the insurance company to pay for the repairs.

Insurance claims can be made for every type of loss or damage, from property damage to injuries resulting from auto accidents.

Depending on the type of claim and its size, the payment process can take anywhere between a few weeks, months, or even years.

After a disaster or an accident, you want to resolve matters as quickly as possible. Your insurance providers are there to help you to do that.

What does it mean to file a claim?

Whether it’s due to an auto accident or a theft that took place at home, filing an insurance claim is the process of informing your insurer about a loss you’ve experienced.

When filing an insurance claim, you request that the insurance company help cover the associated costs.

Traditionally, as the claimant or the insured party, you had to fill out a proof of loss form. Today, it’s possible to file claims online via an app (if they’re straightforward claims) or over the phone with an insurance agent.

You will usually pay a deductible (if applicable) before receiving a settlement check when filing a claim.

How do insurance companies pay out claims?

Insurance companies take a few steps to pay out claims, and the payment process differs for every claim. The type and size of your claim will determine the payment process.

More minor claims are usually straightforward and quicker to process. You may immediately receive a settlement check from your adjuster when making a small claim.

More significant claims are generally more complicated to process. You can expect to receive several insurance checks when you make a larger claim.

1. You (as the insured individual) file a claim
2. The insurer evaluates the claim
3. The claim is either approved or denied
4. Payment is given to the insured if approved

How do insurance companies pay out claims?

You (as the insured individual) file a claim

To start the process, you must file your claim. To do this, you should contact your insurance company immediately after the incident.

The representative will ask you the necessary questions and ask you for any supporting information regarding the loss. All of these supporting documents will be included in the report.

The insurer evaluates the claim

Your documents will be reviewed once the claim has been filed. An insurance adjuster may need to meet you and inspect the damage and report their findings.

The insurance claims representatives will then review everything and determine if the claim will be approved or denied.

The claim is either approved or denied

The claims department might ask for additional information to approve the claim.

If further information isn’t necessary, the claim may be denied if it doesn’t fall within the policy’s guidelines. Whatever the decision may be, the insurance company will notify you.

Payment is given to the insured if approved

You will receive payment for the determined amount of the loss if your claim is approved.

Depending on the claim, you might receive the payment, or your insurance providers might send it directly to the repairers.

Auto insurance settlement

If your vehicle’s repair cost exceeds its value, your insurance provider usually covers the repair bill by issuing a settlement check.

Several factors determine how the payout process for auto settlements works:

If you own your vehicle outright, your insurance provider may send you the check directly.

• If you choose one of your insurer’s recommended repair shops, your insurer will probably send the check to them.
• The insurer may sign the check to you and your lender if you have a loan on your vehicle. Your loan company may sign the check over to you once they verify that your car was involved in an accident, or it might ask you to sign the check to them so they can pay the repairers.
• Your insurers might consider your car a write-off if the cost to repair it exceeds its actual cash value. In that case, the insurer will send you a settlement check equal to the car’s value before the accident instead of paying to repair it.

If you own your car outright, you purchase a new vehicle with the check. In any case, the money is yours to spend however you like.

The insurance check will go toward paying the remaining balance if your car is loaned on a payment plan.

Home insurance settlement

Most home insurance claims are generally more complex and paid with multiple checks, so the repair work can take longer to complete.

Before the repair process begins, the insurance adjuster will sometimes give you an advance on the total settlement amount after evaluating the damage.

You can accept the initial settlement offer immediately and aren’t obliged to keep it.

You will usually receive separate settlement checks if your insurance claim covers separate categories, such as damage to your home, belongings, and additional living expenses (ALE).

Including multiple checks, your claim payout will vary based on some of the following factors:

• If you have a mortgage, repair settlement checks will be made to you and the mortgage company. Your lender wants to ensure the repair work goes ahead as they have a financial interest in your property. After the repairs are complete, your lender may pay the contractors directly from an escrow account.
• If you sign a direction-to-pay form, your insurance provider can pay your contractor. Discussing this with your insurer before signing anything is important, as some direction-to-pay forms can give the contractor complete control over the claim. You should ensure that you inspect the repair work thoroughly If you choose to have payments sent directly to your contractor before the contract closes.

Checks for additional living expenses and personal belongings should be made only to you.

You usually receive two checks if your personal property is insured at replacement cost.

• The first check will be based on the damaged items’ cash value or depreciated amount. Your insurer will match the exact cost once you purchase your replacements. However, you can use the money as you wish if you decide not to replace the items.
• Once you provide your insurers with the receipts for the replacement items, you will receive the final settlement check to make up for the difference between the cash value and replacement value.

What is the insurance claim process?

It’s essential to file your insurance claim immediately after a loss. If you need a recap, refer to your insurance policy document to determine when and how you must submit claims.

Generally, the sooner you make your claim, the quicker you will receive the payout if approved.

How to make an insurance claim

Several steps are involved with filing a homeowner or an auto insurance claim, and not all claims will follow the same process.

We recommend you follow these 7 steps to file a home or auto claim for a successful experience.

Step 1: Contact the police

You should file a police report immediately if your claim involves a car accident, a traffic violation, or any other criminal activity involving your home, such as theft.

Use your police department’s non-emergency line unless the situation is urgent. Depending on where you’re based, you may be required to file your report in person at the police station.

Step 2: Document the damage

You should accurately document the damages. You will be required to submit photos or videos as evidence to your insurer along with your claim.

If possible, take photos and videos of the scene for auto claims before moving your car. Also, record the damages to your home immediately after the incident to show your insurer the full extent of the damage.

Step 3: Review your coverage

You should aim to understand your policy coverages, limits, and deductibles before you file your claim.

Reviewing your policy and coverages will help you avoid filing a claim that won’t be successful. For example, you may file for a loss when the repair costs are less than your deductible or for damage that isn’t covered.

Claims that aren’t covered may not affect your insurance costs, but they will stay on your record. Furthermore, making multiple claims at once can cause your rates to increase, and insurers will assume that you may make future claims.

Step 4: Contact your insurance provider

After determining whether you are eligible to make a claim, you must contact your insurance provider to file the claim. You can usually file a small claim online, as many insurers have that option. You will likely need to contact your insurance agent or correct representative for larger claims.

Ensure you have the information that you plan to use as proof to hand before you begin the process. You should provide the insurance company with the date of loss, receipts for damaged property or medical bills, and a police report (if applicable).

Step 5: Prepare for the adjuster

Your insurers will send an insurance adjuster to evaluate the damage to determine how much your insurance company will pay.

You might want to be present when the adjuster assesses the damage, even though you may not need to. Attending the evaluation will allow you to speak with your adjuster and give you an opportunity to discuss your claim, ask any questions, and show them the damage.

The insurance adjuster will usually:

• Inspect the damage caused to your home or vehicle.
• Check that the damage is covered by reviewing your policy.
• Request for witness’ contact information.
• Ask for the contact details of anyone involved with the claim (doctors or lawyers).
• Interview you about the incident.

Step 6: Review the offer

After your adjuster has evaluated the damage and sent their report to the insurance providers, you will receive a settlement offer. Once you accept the offer, your claim will be closed, so you should review the offer carefully. You can dispute the claim If you’re not happy with the settlement. You can ask the company for a second opinion and review or hire a public adjuster or attorney.

Step 7: Receive the payment and book the repairs

After you’ve signed and accepted the settlement agreement, it’s time to receive the claim payment and hire a professional to make repairs. Your insurer will pay you the agreed amount minus your deductible.

How long does it take to receive payment?

In summary, the length of time it takes for your insurance providers to pay you is determined by the following:

• The size and complexity of your claim
• How soon you filed your claim after the incident
• The number of individuals involved in the incident
• Whether your insurance providers require more documents
• How soon the insurance adjuster can assess the damage and meet you (if applicable)

Key takeaways

An insurance claim is a payment request from a policyholder to an insurance provider after they experience a covered loss.

Any loss or damage could result in an insurance claim, from thefts and property damage to injuries resulting from auto accidents.

File a police report immediately if your claim involves a car accident or any criminal activity involving your home, such as theft, and take photos as evidence.

The time to process payments varies depending on the type and size of the claim.

If you’re unsure about your policy details, your insurance providers can answer any questions if you require help.