Two Times You Should Decline an Insurance Check (And The Times You Really Shouldn't)

Insurance claims go hand-in-hand with stressful events. Your home was just flooded or burned down. Your child was in a car accident. You're managing physical pain while eyeing a growing stack of medical bills.

These pressures leave many individuals chomping at the bit for any settlement that comes their way. Insurance companies are arguably well aware of that fact, and sometimes may even use that leverage to the detriment of their customers.

While an accident or disaster may pressure you financially, consider the potential long-term costs before you accept an insurance reimbursement. Here are two instances where you should think again before endorsing your insurance company's reimbursement check, plus advice on when you should be inclined to signing it.

When endorsing the check voids future coverage

September's Hurricane Irma displaced millions of people and left thousands of homes damaged. Most homeowners have insurance policies in place to cover such damage, but at least three of Florida's home insurance providers have included troublesome clauses with their settlements.

These insurers—Universal Property & Casualty Insurance, People's Trust Insurance and Gulfstream Property and Casualty Insurance Co.—include a clause with at least some of their settlement checks which stipulates that by accepting the settlement, clients release the company from all further liability for any damage or costs related with that claim.

That’s of concern because consumers should avoid closing the door to possible future claims. Significant damage, such as that from a fire or flood, can cause unforeseen problems that may drive repair costs far beyond an insurance adjuster's original assessment. For example, if you accept a settlement check to repair the flooring of your home, only to find out weeks or months later that you have a pervasive mold problem due to the original water damage, you'll want to be confident that you still have the legal right to file a claim with your insurance provider.

Several industry experts have expressed doubt that clauses such as those used in Florida would hold up in court, and spokesmen for the insurers have given various explanations as to why the clause was required. Regardless of the intent and legality of the statements, you should carefully read the fine print of any insurance settlement you receive, with an eye to these or other restrictions. If you encounter any language that you believe might hamper you in seeking coverage in the future, consult your insurance agent and an attorney, if necessary, to determine your rights.

When the original settlement offer isn't enough

When you file an insurance claim, an insurance adjuster will often be sent to evaluate the damage and costs of repair. These adjusters are typically given a dollar range within which they need to settle the claim. As such, the initial offer adjusters make is usually a low-ball offer.

Educated policyholders aren't expected to accept this initial proposal. Rather, insurance companies use it as an anchor for negotiating and benefit from the portion of policyholders who don't know or care enough to submit a counteroffer.

Before accepting any settlement offer from an insurance company, carefully examine the potential costs of your claim and your policy's coverage and limits. For example, if you are in a car accident, the full range of the injuries you sustained, and their resulting medical costs, might not be apparent until days or weeks later. Additionally, you need to consider ancillary expenses. Do you need to rent a new vehicle to get to work for a few days? Will you be unable to work altogether for a time, and lose the pay for that period? Even if your vehicle is repairable, will its resale value be diminished due to the collision? It's likely that the full costs of the incident aren't totally represented in the adjuster's initial offer.

Next, make sure that a low offer isn't due to an area of coverage excluded from your policy, or a policy limit. For example, if your homeowners insurance policy only covers the Actual Cash Value (ACV) of your home, it likely won't cover the full costs of rebuilding your home after it's totally destroyed. If you do feel you're entitled to a higher reimbursement, you may submit a counter-offer to your insurer. Write a letter to your claims adjuster and agent stating that the initial settlement offer is not high enough. Outline your reasoning, include evidence that supports a higher settlement offer, and propose a specific amount for the adjusted claim. These steps should lay the groundwork to negotiate a settlement both parties can agree on.

When should you accept an offer?

You should never reject your insurance provider's initial settlement offer without evaluating it first. Insurers do often issue initial settlement offers that are fair. For example, if a localized hazard, such as a hail storm, damaged a large number of cars and homes at one time, your insurance company may be inundated with claims. Such a scenario proved costly for insurers in Louisiana after they failed to settle claims promptly after hurricanes Katrina and Rita. In such a case, it may be in your insurance company's best interest to settle claims as quickly as possible, and so they might increase the initial settlements they offer. If your initial offer is fair, disputing it by reflex will only create additional headache for you as you try to negotiate an excessive price. Further, should your claim eventually go to court, your legal fees may well exceed any additional money you stand to gain. In such a case, accepting the initial offer is recommended.

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