What Is an Abandonment Clause?

Abandonment Clause Explained

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An abandonment clause is a common clause in a property insurance contract. It states that under certain situations, a property owner can give up their rights to a property and sign it over to the insurance provider while still receiving a settlement.  

However, specific circumstances must occur before this clause comes into effect, and the insurance company must agree to it. For the most part, property owners cannot simply walk away from their property and receive a settlement. 

Here is some more information about this particular clause and the most common situations in which it’s used. 

Definition and Examples of an Abandonment Clause 

The abandonment clause provides a way for property owners to walk away from their property, whether a damaged home, boat, vehicle, or other insured item, typically after getting approval from the insurer and arranging for its repair or disposal. If the abandonment clause is used, the property owner signs the ownership of the property over to the insurance company. 

Typically, the abandonment clause comes into effect when the property is deemed a total loss by the insurance company. This can occur when a vehicle is totaled, or when a boat sinks and the salvage process costs more than the vessel and goods inside are worth.  

For instance, if your home suffers substantial damage from a tornado, you might want to sign the house over to the insurance company and make a fresh start somewhere else. But if the insurance company opts to repair your home instead, you don’t have the option of signing it over and letting them take possession. It is then your responsibility to ensure that the repairs get done. 

How Does an Abandonment Clause Work?  

There are some situations when it doesn’t make sense to repair the property. Usually, this occurs when the costs to repair the property are more than the property’s actual value. Under most circumstances, you can’t simply abandon your property, sign it over to the insurance company, and expect a full settlement. Instead, your insurance company may grant you permission to abandon the property and relinquish your rights. The repair or disposal of your property is typically still your responsibility.

There are times when the insurance company may ask you to wait before a total loss is declared. For instance, if your car is stolen, you may need to wait 30 days before you’re eligible for an insurance payout. Talk to your insurance agent about the specific language in your policy, so you know what to expect if your vehicle is stolen

Let’s say you get into a wreck and your car receives substantial damage. Your insurance company may decide it’s totaled. Usually, this means the damage is so severe that it’d cost more to repair it than the car is worth. If this happens, you can work with your insurance company to sign the title over to them. Then, you receive a total-loss settlement, and the company disposes of the vehicle according to state law.  

Once you sign over the property to the insurance company, you no longer have a claim to the property. This means if the insurance company sells the salvageable parts from your car, it gets to keep the money without giving any of it to you. 

How Does an Abandonment Clause Affect You? 

An abandonment clause prevents you from getting an insurance settlement by simply walking away from property that you no longer want. It also provides a way for insurance companies to decide to allow abandonment if it's determined the cost of repairs would be more than the item is worth. 

Your property must be covered before you’re eligible for a payout. For example, if you don’t have comprehensive coverage on your vehicle and it’s stolen, you likely won’t receive reimbursement for your financial loss. That’s because theft isn’t covered under collision or liability insurance. 

Work with your insurance company when you file a claim for damaged or lost property. Your insurance adjuster or claims examiner can help you navigate the process and determine if there’s been a total loss. 

Key Takeaways

  • An abandonment clause is a common clause in a property insurance contract. It prevents you from abandoning damaged property and receiving an insurance payoff without the approval of your insurance company. 
  • Insurers may allow you to sign over your rights and abandon the property if there has been a total loss. 
  • Abandonment clauses are found in different types of insurance policies, such as homeowners, car, and boat.