When filing a home insurance claim, it’s easy to see why some homeowners might hope to come out with some extra cash. After all, who wouldn’t love to have a little leftover money after taking care of their claim? Some people think that once they’ve filed, they’ll receive the entire amount listed in the estimate, and if they hire a cheaper contractor, they can pocket the difference. However, what they don’t realize is that this strategy often benefits the insurance carrier more than it benefits the homeowner.
To break it down simply, let’s look at how this common misconception can end up costing you.
Why Trying to Save on a Claim Often Benefits the Insurance Company
Many people assume that once their insurance company agrees to pay a claim, they’ll receive the total amount right away, and they can decide how to spend it. This misunderstanding leads some homeowners to seek out bargain contractors, thinking they can keep the difference between what the insurance pays and what they spend on repairs.
However, the truth is that most home insurance policies, especially those with Actual Cash Value (ACV) coverage, don’t work this way. With an ACV policy, the insurance company typically only pays a portion of the claim up front. This is to cover the current, depreciated value of the damage. Once the work is completed, the homeowner can claim the rest—if the work is billed for the full estimate.
Here’s an example that highlights what can go wrong.
A Real-World Example of How This Plays Out
Imagine a homeowner needs to replace their roof after a storm, and the insurance company has agreed to pay $20,000 for a roof replacement. First, the carrier will only pay a portion of that amount up front—let’s say they send an initial payment of $9,000.
The homeowner has a $1,000 deductible, which they need to pay out of pocket to get the replacement started. Looking to save some money, the homeowner hires a cheaper roofing contractor who offers to replace the roof for $18,000 instead of $20,000.
After the roof is replaced, the roofer sends the invoice to the insurance company. Instead of billing for the full $20,000 that the insurance was originally prepared to pay, the contractor only bills for $18,000—the agreed-upon amount for the cheaper roof.
The insurance company then pays the remaining balance, $8,000, directly to the homeowner or the contractor. But here’s the catch: the insurance company is only obligated to pay what is billed by the contractor. Since the work cost $18,000 instead of $20,000, the insurance company keeps the extra $2,000 of depreciation money.
What Happens to the Extra Money?
That extra $2,000 doesn’t go to the homeowner. Instead, it stays with the insurance company. The homeowner ends up with a lower-quality roof while the insurer saves money. The entire point of filing the claim, which is to restore the home to its pre-damage condition, is compromised because the homeowner chose a bargain option.
This is because insurance companies only release the withheld depreciation once the contractor bills for the full cost of repairs. If the total job cost is lower than what the insurance approved, they won’t pay the full amount—leaving the homeowner with a subpar repair and no extra cash in hand.
Why Choosing a Quality Roofer Makes Financial Sense
Homeowners who try to save by cutting corners often end up losing in the long run. The better approach is to hire a reputable roofing contractor who will do the job properly, even if their quote matches the insurance payout. By doing this, homeowners ensure they are getting a quality roof that will protect their home for years to come, and they can take advantage of the full amount their insurance is willing to pay.
Moreover, a poorly done roof job could lead to bigger problems down the line—like leaks, structural damage, or even another insurance claim. In some cases, choosing a cheap contractor could possibly void the homeowner’s insurance if the work isn’t up to code or fails too soon.
How to Make the Most of Your Insurance Claim
To avoid these pitfalls, a smart homeowner should take the time to understand how their insurance policy works and what type of coverage they have. It’s essential to remember that the goal of an insurance claim is to restore your home to its pre-loss condition, not to come out with extra cash.
Here are a few tips to ensure you make the most of your insurance claim:
- Know your policy: Understand whether you have an Actual Cash Value (ACV) or Replacement Cost Value (RCV) policy. ACV policies pay based on the depreciated value, while RCV policies pay for the full replacement cost.
- Hire a reputable contractor: Get quotes from trusted, licensed contractors who will do quality work that meets industry standards.
- Submit all necessary documentation: Ensure your contractor bills for the full amount of the work. This will ensure you receive the full payout from your insurance company.
- Avoid the temptation to pocket the difference: While it might seem appealing to save money by hiring a cheaper contractor, it rarely works out in the homeowner’s favor.Â
The Bottom Line
Trying to come off an insurance claim with some extra cash might seem like a clever idea, but in reality, it can backfire. Rather than leaving you with extra money in your pocket, it’s more likely to result in future necessary repairs and savings for the insurance company.
A smart homeowner will focus on getting their home restored to its proper condition by hiring a reputable contractor and following through with the insurance claim process correctly. By doing so, you protect your investment and ensure your home stays safe and sound for years to come.
