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 an insured individual to their policy provider. An insurance claim is made after an incident occurs that's covered by the insurance 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, how companies handle insurance claims, and what to expect when filing them.

What Is an Insurance Claim?

An insurance claim is simply a request made concerning an insurance policy. When you make an insurance claim, you have usually suffered some type of loss or your property has sustained damage that is caused by one of the named perils insured by your insurance policy. Your insurance policy provides coverage and compensation to you for covered losses or sustained damages, and an insurance claim is a request for that compensation.

How Does an Insurance Claim Work?

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

Your insurance claims process will depend on your deductible, whether your deductible amount will apply to your loss, and what your actual loss is. If you are trying to find your insurance's basic coverage description, look for the declaration page of your insurance policy to find this information. 

Your insurance claims process will also depend on the type of claim you are making. Home insurance and personal property insurance claims will involve meeting with adjusters, getting approvals for estimates, making repairs, or replacing items. When it comes to health insurance, the claims process often takes place without the patient's involvement—though that's not always the case.

Due to the complexity of insurance claims, miscommunication is a common occurrence when trying to get the information you need from your insurance company. This seems to hold especially true when you have a major claim for your home resulting from a disaster event. Help yourself by reviewing the details of how your major disaster home insurance policy works.

If you feel like your insurance company has not been fair with your insurance 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 a claim will be paid with your policy. You might have experienced a claims situation where it seems like one person got paid more than another for the same type of damage or loss. Many think this is because the other person has a better insurance company, but that isn't necessarily true. You choose coverage options when you purchase your policy. The person who received more money from their claims may have paid a higher premium for a better insurance policy.

The best way to avoid this situation is to be clear about what will be paid by insurance for your contents or personal property as a homeowner or renter. Understand what's covered by home contents insurance and the special limits on personal contents. If you have additional structures on your property, understand whether your policy will cover any claims for outbuildings and other structures.

How Will a Claim Be Paid

The type of coverage you have will have a significant impact on how much you get paid in a claim. One important distinction is between actual cash value and replacement cost.

  • Actual Cash Value Settlements: People who have an actual cash value basis of claims settlement will not receive enough money in a claim to replace the items they have lost. If your contents or building are insured on an actual cash value basis, then you will only get the depreciated value at the time of loss. You can think of it as the price you could get for the item at a garage sale. As a basic example, 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 likely $500, at best. In a claim, if your building and contents were only insured for the actual cash value, you are unlikely to get enough money to truly replace the TV you lost. You'll have to settle for a cheaper TV or pay more for the same TV out of your own pocket.
  • Replacement Cost Settlements: Replacement cost claims payments are far more favorable for policyholders than the actual cash value settlement. Replacement cost basis payments will help you get back into the situation you were in before your loss or disaster by providing coverage for repairing or replacing the items insured. The only catch is that you need to ensure that your policy provided enough coverage at the time of loss to cover the costs.

No two companies handle claims exactly the same, even if they both use the same payment system. In major disaster claims, it can get extra complicated—insurance companies have been known to simplify the process and immediately cut a check while the claims process plays out. The better you maintain communication with your insurance company, the more likely you are to have a favorable situation.

How Will Making a Claim Impact Your Policy and Premiums?

The cost you pay for insurance premiums is based upon your perceived riskiness. Therefore, making a claim may impact the cost of your insurance for several years. You could lose a claims-free discount, or the insurance company could be concerned about your claims frequency or the risk of your property.

When you have a claim situation, speak to your insurance representative to understand how making a claim will impact your insurability. If a claim is not your fault, or there is subrogation, make sure to get a letter of claims experience or 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 be short or more involved depending on how small or large of a claim you need to file. Here are some helpful guidelines that will hopefully keep your homeowners' insurance 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 everyone is safe. Worrying about property damage is secondary to your personal safety.
  • Hire a reputable contractor for your insurance claim: When it comes time to file your homeowner's insurance claim, it is important to find a fair and reputable contractor. Unfortunately, some contractors prey on people’s fears and anxiety about what has just happened. 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 understand the various types of coverages and how they apply to you in a claim.
  • Condo association coverage and personal condo coverage: Be clear about the differences between the association coverage and your coverage in a claim and who pays what. If you own a condo, you must also understand loss assessment coverage for claims.
  • Car insurance claims: If you need to file an auto insurance claim, there are five basic steps to consider for a successful auto insurance claim, from deciding if you should file to expecting the call from the insurance company,
  • Life and health insurance claims: After a loved one dies, filing the life insurance claim can be confusing and difficult, what is worse is if you are the beneficiary and can't find the policy, or if you don't know if there ever was one. There are several websites dedicated to helping people find a lost life insurance policy, including Missing Money.

Key Takeaways

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