How Do Insurance Claims Work? What You Need to Know

by Ragini Salampure
How Do Insurance Claims Work What You Need to Know

Lucky folks never have to file a claim against their insurance, but if you’re on the other end of the spectrum, insurance claims are part of life. As of 2019, 91.5 % of Americans had health insurance, and the numbers keep going up. For most people in the country, insurance is a way of life and a life-saver, quite literally.

Your insurance policy covers any loss, injury, or disaster your experience under the policy’s terms and conditions. However, you have to file a claim to receive compensation for your losses or damages. So how do insurance claims work, and why are they so important?

If you suffer a loss or accident that your insurance covers, you need to lodge a claim to activate the insurer’s response. Your insurer then approves the claim and fulfills its obligation as stipulated in the policy’s terms and conditions. While most people have comprehensive insurance, not a lot of them understand how insurance claims work.

Today’s post is an in-depth look at how insurance claims work and all you need to know about the insurance claim process.

What Is an Insurance Claim?

An insurance claim is a request you make to an insurance company concerning a policy that you’re covered with. When you make an insurance claim, it’s usually because you’ve suffered some loss or damage caused by one of the perils covered by your insurance policy. 

Your insurance company provides compensation for any loss or damage you incurred, provided they’re covered in the policy. An insurance claim is essentially a request to the insurance company for compensation.

How Do Insurance Claims Work?

There are tons of factors that determine how your insurance claim process goes. Some insurance claims involve mailing documents, while others involve talking to your insurer’s representatives. Some tech-savvy insurance companies allow you to file your claim through their mobile apps.

Making a claim should be a breeze if you collect and organize all the information that your insurer needs. When the unexpected happens, the first thing you should do is contact the insurance company as soon as possible. This is especially true for cases and theft incidences.

Before filing a claim, it’s a good idea to review the product disclosure statement to see what is covered in your insurance policy. Ensure you check out the exclusion list to determine whether you have a valid claim in your hands.  

Your insurance company will also review the product disclosure statement to determine whether your claim is valid. However, it’s a good idea to do so yourself to save you the trouble of filing a claim that your insurer will reject.

If you want a seamless claim process, take a systematic approach and make sure you’re well organized. Also, make sure you settle for a reputable insurance company to sidestep any unnecessary frustrations during the claims process.

How Are Insurance Claims Processed?

The amount of money you get from your insurance claim depends on your deductible. The deductible is the out-of-pocket cost you pay when you make a claim. However, not all incidences have a deductible amount.

You need to determine whether your deductible amount applies to your situation and the actual loss amount. You can check out your insurance policy’s basic coverage description on your insurance policy’s declaration page to get information on your deductible.

Insurance claim processes vary from the type of claim you’re making. For instance, making a claim for home insurance is very different from making one for car insurance. Your insurance provider should give you a clear roadmap on how to make a claim.

If they don’t, there are plenty of online resources where you can find the information you need. For instance, if you ever have an auto accident, you can read these steps to take after an auto accident to make your claim.

Miscommunication between the claimant and insurer is very common, especially with major claims. This results in a prolonged claims process or rejection of the claim. If you can’t get information or a response from your insurer, go over the details of your insurance policy or hire an attorney to guide you through the process.

Some insurance companies may undervalue your claim or deny coverage of certain perils. If that’s the case, you can file a complaint with your state insurance commissioner. However, once again, make sure you review the product disclosure statement to ensure your policy covers the incident.

How Do Insurers Pay Claims?

The amount you’ll receive for your claim primarily depends on the type of insurance coverage. One thing to keep in mind is that actual cash value and replacement cost settlements are very different. Here’s what makes the two distinct.

Replacement Cost Settlements

As the name connotes, replacement cost settlements are payments to help you get back to your previous state before the incidence. The insurance company will provide coverage for repairs and replacements, but only for items that the policy covers.  

Replacement cost settlements tend to be more favorable than actual cash value settlements. The only catch is that you need your insurance policy to sufficiently cover all items at the time of the incident.

Actual Cash Value Settlements

With actual cash value settlement, your insurance provider pays you the value of the products lost because of the incident.  However, it’s highly possible that you won’t receive enough money to cover the lost items. That’s because the insurance company only pays you the depreciated value of the items lost.

Cash value settlements aren’t the most favorable because of their high deductibles. In some instances, the depreciated value of the lost items could be very low from what you actually paid for the item. You can compare the value to what you’d pay for items at a garage sale. 

Find an Insurance Policy That Works for You

“How do insurance claims work?” is a question you should be able to answer comfortably at this stage. Remember, your claim settlement is only as good as the insurance policy you settle for. Ensure you only settle for an insurance policy provider that works for you.

For more informative content, read the other pieces on our site.

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