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Question DetailsAsked on 3/30/2017

If my homeowners claim paid the deductible out of the check why should I have to pay the contractor a deductible .

I had water damage to my home. My insurance company wrote up the work to be done, the amount to be paid minus my deductible. I received the check less the deductible. I am using a contractor from the insurance company who now says I owe him the thousand dollar deductible. I feel as if we are paying twice, it was already taken out of our claim amount and paid to the insurance company.

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2 Answers

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Actually, I seriously doubt the contractor is "from" the insurance company - undoubtedly just one of several they deal with routinely and get along well with on determining claim amounts (or he always agrees to accept whatever adjusted claim amount they will agree to with him), but he is actually under contract with and working for you - especially since they gave YOU the insurance check, not paying him directly.


But yeah - that can be confusing. Assuming the insurance company and the contractor agreed on the value of the damage repair (the "Adjusted Claim Amount" or similar phrasing), that is the value of the damage - the cost of repair/replacement - and the amount the contractor expects to get paid.


The insurance company then pays that - minus the deductible, which is the amount that you had agreed (in the insurance contract) to be your shared financial responsibility for each claim, so they deduct that from the total adjusted amount to come to the amount of the check they cut. The deductible was taken out of or deducted from the claim amount, but was not "paid to the insurance company" - it is your share of the damage cost, so they reduce their payment by that amount, leaving the deductible amount to be paid by you.


The contractor then would expect to get the full adjusted claim amount - the full value of the repair or replacement - which equals the amount of the insurance check (which was the adjusted claim amount minus the deductible), plus the deductible amount - which you pay to the contractor.


That way he gets the full amount of the damage repair cost, the insurance company pays that amount minus your co-insurance part (the deductible), and you pay (your out-of-pocket amount) the deductible which your contract calls for you to pay on each claim.


It just seems like they took the deductible and then you also have to pay it to the contractor - but actually the insurance company covers the claim value minus the deductible amount which is your share, and you pay the deductible - it is not being paid out or taken twice.


In most or all states, you are REQUIRED to actually pay this deductible to the contractor, not keep it - any scheme that ends up with you not paying out the deductible (like the contractor bumped his price up to compensate for it or says he will "refund" it to you) is generally considered insurance fraud - at least civil, and also criminal (by both him and you) in probably most areas.


Of course, what the contractor actually gets paid depends on your contract with him - I assumed above he agreed to take whatever the adjusted claim amount was. It is possible to agree to any terms you want - but generally any funds you do not pay to the contractor (including the deductible amount) have to go back to the insurance company as a refund - you cannot keep them in general.


Caveat - in some cases they just give you a lump sum claim payment for the damage, it does not have to go to the repairs, and you can do whatever you want with it, though if the damage is not repaired then that eliminates any future claims for damage in the same area or secondary damage from the damaged materials, and they may drop your policy if you do not repair it in a reasonable amount of time. Depends on policy terms and state law - this sort of payout is more common with auto than home damage cases. Also commonly used where you are going to DIY the repair (if insurance company allows that - many require a licensed contractor do the work) - in that case commonly they pay a fraction (like about 1/2 or 2/3) of what they figure a contractor would charge.


One other thing which might come up - if your policy does not have replacement value coverage (which costs higher premiums), then they will pro-rate the adjusted claim amount based on age. So say house is 15 years old and they figure 40 year life on a house of your type, they will "amortize" or "depreciate" the value of the house (and damaged area) by 15/40's in that case - meaning they would figure the full repair cost, then multiple by 25/40's (the remainingn life) to pay only for the "undepreciated" portion or the remaining life that was in it at time of damage - then reduce that number by your deductible. In that type of insurance (which is normally the default if you did not pay-up for replacement value coverage, even though the premium stays the same (adjusted for inflation of course) over the life of the policy, the benefit you get out of a claim decreses over time, so it is really a tricky little scam.


Say in this case your house was 40 years old or older - you would get zero in that case. I have heard of cases where buyersof older homes bought insurance (as required by their mortgage lender), but when they had a physical building loss claim their insurance company said the house was fully depreciated so the claiim payout was zero - they paid only for damage (again depreciated) on furnishings and personal possessions, so you have to be careful about that.


Had one commercial client which had that happen to them - $8 million building pretty well toasted by fire and fire-fighting water damage so it was a teardown, and they got almost nothing for their decades of tens of thousands of $/year insurance premium because the building was over a hundred years old with an assumed useful life of 60 years and they had not gotten (almost no owners knows about this trick) a structural longevity assessment on the building showing it had an estimated remaining life of X years - X depending on type of construction and current condition, of course but commonly with a building in decent shape at leat 20 and usually more like 40 years (rarely more because no one wants to stick their neck out and say a building will last more than anotehr 40 years - but down the road it could again be reassessed and gvien another 40 year life assessment. Consider the multi-hundred year old buildings still in everyday use - they could have been reassessed for another 40 or so years many times over during their life.

Answered 1 year ago by LCD

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Oops - last paragraph got clipped - guess I got too wordy (imagine that).

.....


Homeowners get caught by this all too often - where the insurance pays a small fraction of the repair cost (or even none) and maybe not even any of the demolition cost (if a total loss), but they still owe the mortgage remaining on the building. In fact, some slimy mortgage lenders put in their deed of trust that any insurance payment for building damage and/or loss has to be paid to THEM - reducing the mortgage amount, then you are supposed to pay for the loss out of pocket - a nasty twist in a lot of policies that people do not know about, and can require you take out a second mortgage to pay for the repairs/replacement - probably why they sneak that clause in there. Had Allstate try that when I was looking to insure a home we were moving into, and two more carriers had the same provision before I found one that did not - State Farm. That is one reason replacement value (including code upgrade provisions) coverage is so important - so you can (hopefully) rebuild to what was there before, and have the building in a condition where the mortage is not now more than the building is worth.

Answered 1 year ago by LCD




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