Should you return a partial payout from a home insurance claim?
Key takeaways
- Your home insurance claim payout may be either a full or a partial payout, depending on the nature of the damage and your carrier’s policies.
- Filing a property insurance claim may increase your annual premium, but returning an unused partial claims payout won’t help return your homeowners insurance premium to its original rate.
- If you receive an overpayment from your insurance company, it’s likely best to contact them to determine the best course of action.
- Using a claims payout for things other than the approved repairs may be seen as insurance fraud by your carrier.
The payout process is one of the most important parts of filing a home insurance claim. A home insurance claim check can either be sent directly to the contractor tasked with repairing your home or to you, the policyholder. If your insurance company opts to pay you directly, you may not get full payment right away. Instead, you could get a portion of the payment, and the rest will come after you submit more proof of repairs to your home insurance company. In some cases, your insurance provider could overpay for a claim, leaving you with some extra cash. You may be able to keep extra money from an insurance claim, but you’ll need to carefully read your policy first to make sure.
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What is a partial insurance payout?
If your home insurance company decides to pay you directly, you could either receive the entire claim payout, or you may receive a partial payout. In a partial insurance payout, you’ll receive a portion of the total claims payout amount up front. Once you submit more documentation about your home repair process, you will then receive the rest.
Alternatively, if you receive the entire payout upfront, you may end up with extra funds if the repairs end up costing less than what your insurance company estimated. In rare cases, you may even have extra money left over after just a partial claims payout. The cost of repairs may vary greatly based on current economic conditions, like the cost of labor and materials, so an insurer’s estimates may not always line up with the actual cost of repairs.
Does returning a payout decrease your home insurance premium?
Filing a property insurance claim may increase your annual premium once it’s time to renew your policy. However, returning a claims payout or a partial payout won’t help return your homeowners insurance premium to its original rate. Your premium is based on both the frequency of claims and the amount to which they are paid. Even if you return some of the money, the claim is still part of your insurance history and will show up on your CLUE report. Claims that result in larger payouts may cause your home insurance premium to increase more than a smaller claim, but even if you return some money to lower your claim payout, it’s not likely that you’ll return enough to offset a premium increase.
The table below illustrates how average home insurance rates can change after filing different home insurance claims. For reference, the national average cost of home insurance is $2,286 per year for $300,000 in dwelling coverage as of September 2024, according to data sourced from Quadrant Information Services.
| Claim type | New average annual premium | Increase from national average |
|---|---|---|
| $12,000 wind claim | $2,381 | +$95 |
| $5,000 theft claim | $2,414 | +128 |
| $80,000 fire claim | $2,408 | +122 |
Additionally, receiving overpayment for a claim is rare. You generally receive payment in stages, with the final check issued after the insurance company receives a certificate of completion to confirm both the final cost and the actual repairs. You may need to provide invoices and photographs to show that the work is completed. In some cases, your contractor may request a “direction to pay,” which asks that they be paid by the insurance company rather than the homeowner. In this situation, you may need to confirm the work was done properly before your home insurance company pays the contractor the final installment.
Understanding the claim payout process
There are several steps that take place during the home insurance claim payout and repair process.
- First, a field adjuster will come to your home, take photos of the damage and provide a comprehensive report to your insurer.
- Then, your insurance company will determine whether the loss is covered, and if it is, provide an estimate of the repair costs needed based on your policy’s coverage limits. At that point, you might receive an initial payment from the insurance company to start repair work on your home.
- Once the work is completed, you’ll submit the Certificate of Completion (COC), which verifies the funds were used to complete the required repairs. Once the repairs are completed, your insurer will initiate the release of the remaining balance.
- If you submit a claim for personal property, you’ll have to account for whether you have an actual cash value (ACV) policy or replacement cost coverage. Your initial claim check for personal property damage will be for ACV. For replacement cost coverage, once you’ve purchased new items to replace the damaged or destroyed items damaged in a covered peril, you can submit proof of purchase and receive a second payment for the remaining amount, covering your items at replacement cost value.
Also, remember that your deductible is subtracted from the claim amount you receive from your insurance company. Typically, you pay the deductible to the contractor completing the work, while the insurance company pays the rest. While a higher deductible typically saves you money on your annual premium, it does mean you’ll pay more out of pocket following a claim.
If you fail to complete the repairs outlined by your insurance company, you may be denied future claims or your coverage may be canceled. That’s because insurance companies have a legal obligation to provide compensation to restore the building to its condition before the loss and unrepaired damage increases risk of further expense and potentially liability concerns.
Read more: What to do if your home insurance claim is denied
It’s possible for your home insurance company to offer you a cash settlement, instead of money for repairs, if your home is rendered a total loss. If, for instance, a fire completely destroys your home, you may be able to receive a payout for the value of your home. However, this may not be available from every insurance company.
Are there deadlines to use your payout?
Insurance payout deadlines depend on your home insurance policy. This is most relevant for policies that include replacement costs. You’ll initially be paid out based on the actual cash value. You won’t receive the final payment encompassing full replacement cost until you submit your Certificate of Completion showing that you updated those items accordingly. You may have several months to do this, but you’ll need to check with your insurer to ensure you follow their requirements.
Can you keep extra money from an insurance claim?
There may be some circumstances in which you have leftover money in a claim payout, although this is rare. The adjuster’s estimate takes into account current market rates for labor and materials. However, those actual numbers can change, and you may experience marginal savings in the repair process. In this situation, you likely want to check with your insurance carrier about what to do.If you have a mortgage on your home, your claims checks may be payable to both you and your mortgage lender. This can make excess funds a little trickier to handle, as you’ll need your mortgage lender’s permission to cash the check and send back any overage. If your claim payouts are paid by direct deposits, you may be able to write a check to your insurance company or wire excess payments back directly. Still, you should talk to your insurance company about excess funds to understand the correct course of action.
Your insurance policy may also spell out exactly what to do in this scenario. Some insurance companies include specific language that requires policyholders to return excess funds.
Frequently asked questions
Methodology
Bankrate utilizes Quadrant Information Services to analyze September 2024 rates for all ZIP codes and carriers in all 50 states and Washington, D.C. Quoted rates are based on married male and female homeowners with a clean claim history, good credit and the following coverage limits:
- Coverage A, Dwelling: $300,000
- Coverage B, Other Structures: $30,000
- Coverage C, Personal Property: $150,000
- Coverage D, Loss of Use: $60,000
- Coverage E, Liability: $500,000
- Coverage F, Medical Payments: $1,000
The homeowners also have a $1,000 deductible, a $500 hail deductible and a 2 percent hurricane deductible (or the next closest deductible amounts that are available) where separate deductibles apply.
These are sample rates and should be used for comparative purposes only. Your quotes will differ.
Claims: Rates were calculated based on the following insurance claims assigned to our homeowners: “fire ($80,000 in losses), theft ($5,000 in losses) and wind ($12,000 in losses).”
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