Every sizable insurance claim represents a possible loss for an insurance company. When homeowners make storm damage claims or otherwise seek compensation for issues with their properties, insurance providers lose money. Insurance companies make the most money from customers who never need to file claims and from those who never need to make use of the full extent of their coverage.
In cases where policyholders require extensive coverage, the insurance company may be quick to offer a settlement. Those unfamiliar with insurance company practices and feeling worried about paying for repairs or affording an alternate housing arrangement temporarily might feel sincerely grateful to receive a settlement offer. Instead of waiting for weeks for an investigation, they have the money they need right away.
Unfortunately, the settlement often represents the only financial support the policyholder can expect to receive regardless of their overall expenses. People generally need to be cautious when evaluating settlement offers or risk receiving less support than they require.
How settlements work
On the surface, an insurance settlement may seem like a fast and mutually beneficial arrangement. The property owner gets the money they need as quickly as possible, while the insurance company protects itself from ongoing liability. It is a win-win scenario, at least on paper.
In practice, insurance settlements often prove to be more beneficial for the insurance company than the policyholder in need of coverage. The company limits its losses, while the policyholder loses out on the right to request additional compensation in the future, regardless of how many expenses they eventually accrue.
It is standard practice for insurance companies to offer settlements that fall well below the policy limits. The entire purpose of settling is to save the insurance company money. Policyholders often have to counter settlement offers by proposing a more reasonable amount of compensation.
To do so effectively, they need to understand the coverage provided by their policy and have a realistic estimate of the financial losses triggered by the property damage. Many people already dealing with the stress of a damaged primary residence do not have the mental bandwidth to learn about the nuances of complex insurance claims. They may benefit from partnering with an attorney who can communicate with the insurance company and help manage the negotiation process.
Securing adequate financial support during a sizable homeowners insurance claim can be a frustrating and lengthy process. Recognizing that a settlement represents the end of insurance company liability may help people be more assertive when attempting to negotiate for compensation after a major storm.