What Is an Insurance Claim?

Definition & Examples of an Insurance Claim

An insurance assessor inspects a damaged vehicle

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An insurance claim is a formal request for payment made by someone to their policy provider. A claim is made after an incident occurs that's covered by the policy. Payment from a claim is usually used to replace or repair property or pay for health care costs related to an injury.

Learn more about insurance claims and how companies handle them. Also, learn what to expect when filing one.

What Is an Insurance Claim?

A claim is simply a request made to your provider. When you make a claim, your property has been damaged, or you have been injured. You can only claim something that is caused by one of the named perils listed in your policy. Your policy covers and compensates you for losses or damages. A claim is a request for that compensation after you pay your share of the costs if you have any.

How Does an Insurance Claim Work?

Many factors dictate what your claims process will look like. It could involve mailing documents, calling a representative, using the company's app, or a mix of these actions.

Your claims process depends on how much you have to pay before your provider does, called the deductible. You pay your deductible, and your provider pays the rest of the loss. If you need to find your basic coverage, look for the declaration page of your policy to find it. 

Your claims process will also depend on the type of claim you are making. Home and personal property claims can become lengthy processes. You may have meetings with adjusters, get approvals for estimates, make repairs, or replace items. The process for health insurance differs in that it often takes place without your involvement—though that's not always the case.

Due to the complex nature of claims, it's easy for both parties to misunderstand each other. You need information from them, and they need it from you. However, it doesn't always flow the way it should. Help yourself by reading the details of how your home policy works.

If you feel like your provider has not been fair with your claim or policy, you have the right to file a complaint with your state insurance commissioner.

Payments Depend Upon Policy

Before starting the claims process, you may want to review how your provider will pay a claim. You might know someone that was paid more than another for the same type of damage or loss. Many think this is because the other person has a better provider. However, this isn't always true. You choose coverage options when you purchase your policy. The person who received more money from their claims may pay a higher premium for better coverage.

The best way to avoid this is to be clear about what contents or personal property are covered. Learn what's covered by home contents insurance. Find out if there are any special limits on personal contents. If you have extra structures on your property, figure out whether your policy will cover any claims on the buildings and their contents.

How a Claim Will Be Paid

The type of coverage you have greatly impacts how much you get paid in a claim. One important factor is the contrast between actual cash value and the cost to replace items.

Actual Cash Value

Actual cash value is the fair market value of any items. This value is the current value of the item, not what you paid for it. Not many items gain value with time and use. Actual cash value claims never receive enough money to replace the items lost.

For instance, assume your TV set is a few years old. You paid $1,000 for it when you bought it, but now, the actual cash value of it is close to $500, at best. If you filed a claim, you would only get $500, leaving you to pay for the rest out of pocket or buy a cheaper TV than you had.

No two companies handle claims the same, even if they both use the same payment system. In major disaster claims, it can get extra complex. Companies have been known to cut a check while the claims process plays out. The more communication you have with your provider, the more likely you are to have a good outcome on your claim.

Replacement Costs

Replacement cost claims payments are far more favorable than actual cash value. This is because these payments help you get back the items without extra cost to you at that time. The only catch is that you need to ensure that your policy has enough coverage at the time of loss to cover the costs.

Which Should You Choose?

With replacement costs, you'll have higher premiums than if you would with cash value. The key is to decide how likely it is that your property or the contents will be damaged, lost, or stolen. If it is likely to happen, you might prefer replacement costs. If the odds are low that anything will happen or you have the money to fix the damage or replace the items after getting the cash value, actual cash value might work for you.

How Will Making a Claim Impact Your Policy and Premiums?

The cost you pay for premiums is based upon how risky you appear to the provider. If you make a claim, it can impact your costs for many years. You could also lose your discount for not making any claims.

Your provider might become concerned about an increase in claims or risk to your property after you file a claim and raise your premiums.

When you need to file a claim, speak to your representative. Have them explain how making a claim will impact your wallet. If an accident that results in a claim is not your fault, ensure to get a letter of claims experience. Make sure you keep the closing notice from the claim so you can provide the information to future insurance applications.

Preparing and Filing Your Insurance Claim

Filing a claim can either be a short or long process. It will depend on how small or large a claim you need to file. Here are some helpful tips that might keep your claim filing process hassle-free.

  • Safety first: When you're forced to evacuate your home due to a disaster, the first concern for every family should be to make sure you're all safe. Worrying about property damage is secondary to your safety.
  • Hire a reputable contractor for your claim: If you have to file a claim for your home, it's vital to find a fair and reputable contractor. Some prey on people’s fears and anxiety when they need help the most. While many of these people are honest and reputable, some are not.
  • Condo and co-op owners require special kinds of insurance: If you own a condo or co-op, make sure you know what the many types of coverage are and how they apply to you if you file a claim.
  • Condo association coverage and personal condo coverage: Association coverage and your coverage in a claim differ in who pays for what. If you own part of or a whole condo, you should understand loss assessment coverage for claims.
  • Car insurance claims: If you need to file an auto claim, you'll need to take certain actions to make the claim go smoothly.
  • Life and health insurance claims: After a loved one dies, filing the claim can be confusing and difficult. It becomes worse if you're the beneficiary and can't find the policy or if you don't know if there ever was one. Many websites exist to help people find a lost life insurance policy.

Key Takeaways

  • An insurance claim is a request from a policyholder to receive compensation from the policy provider.
  • Claims are filed after a covered event has occurred, such as a natural disaster, house fire, or car crash.
  • The money from a claim is meant to help replace and repair property or medically treat people covered by the policy.