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Insurance Nightmares

Updated on May 17, 2010
Image from  photos/delolds/  203570330/
Image from photos/delolds/ 203570330/


Eventually, most homeowners will sustain a loss of some type to their homes and have to make an insurance claim for property damages.  It is important to understand that most insurance companies are for-profit business that are in business to make money.  In addition, they have a responsibility to their insureds to provide prompt and professional service while attempting to keep their rates as low as possible. 


In order to keep the rates low and the profits high, they need to find the most effective ways to save money and the only logical place to do it is with the claims themselves.  This happens with all types of claims to include Homeowners, automobile, liability, worker’s compensation, and heath insurance.  So ultimately, it is to their advantage to try to save money on your claim.  The way that they do this is by researching the most cost effective repair processes or by denying your claim altogether. 


Don’t get me wrong; there are many insurance companies out there who do not look for ways to deny legitimate or covered losses or use cheap repair/replace methods, but there are many companies that will attempt to find reasons to deny your claim or write estimates that are less than it costs to get the work done by a quality repair person. 


Denying a claim is a serious thing and if the claim was denied by the insurance company when it should have been paid, the Insured has a right to appeal to the State Department of Insurance.   The Department of Insurance takes these matters seriously and will force the insurance company to either pay the claim or explain in writing why the claim was denied by showing them a copy of your policy.  Although each state is different, most states require the insurance company to find a way to pay the claim unless the reason for the denial is black and white. If there is a gray area, the decision should be in favor of the insured because the average homeowner’s policy is a contract of adhesion, which means that the insurance company dictates what they cover in the policy/contract and you, the insured, must adhere to that contract.


Many times, a denial of coverage by the insurance company is accurate and it is usually straight forward.  For instance:  Damage caused by flood or water which seeps through a foundation or window, doorway, etc, is usually specifically denied under most policies and rarely will they offer an endorsement that will cover these sort of losses. 


It is also important to understand what types of policy that you have as there are usually two major type.  One is considered and “All Risk” policy, in which you are covered for everything, unless it is specifically denied or limited by the policy and/or endorsements that you carry.  The other is called a “Named Peril” policy, in which you are only covered for the specific perils named in the policy.  If the peril is not named/listed as covered, than everything else is denied, unless you have a specific endorsement that covers you otherwise. 


It is very important to sit down with your insurance agent and discuss if you are properly covered for everything that you need or want to be covered for.  Remember, you get what you pay for.  If you are trying to keep your rates down, than you will have less coverage.  Being an insurance adjuster, I have denied many claims because the person is inadequately covered because they were not pro-active in determining what coverages they needed or they were just looking for the cheapest policy that they could find and in both cases, they all ended up having to dish out the repair expenses out of pocket.   With insurance, cheaper is certainly not better and all insurance companies are not created equal when it comes to claims service. 


A good rule of thumb is to remember, if the insurance company is always talking about how they have the cheapest rates, it is because they are taking that money from the claims service.  Watch their commercials or their mailings; if they pride themselves on low rates or tell you that they can beat their competitor’s rates, it is usually true, but just pray you never have a claim with them.  I am fortunate to work for a company that does not pride themselves on low rates, but on it’s claims service and believe me, there are some good companies out there, like the one I work for.  Unfortunately, agents are not always the best people to ask as they are paid commissions by insurance companies so some times (depending on the integrity of the agent) their best interest may be to direct you to the company that pays the best commission rather than the one that provides the best service. 


For legal reasons, I can not list which companies are the best or worst with regards to their service, but you can certainly research that online because there are companies that do that using surveys and such.


Another common mistake people make is with choosing their deductibles.  Deductibles range from $100 – $5000 with most policies and it is important to determine what you can afford out of pocket if you ever have a loss.  Time and time again, I have adjusted a loss only to find out it was either under the insured’s deductible or that the deductible was so high that the insured had to pay a big chunk of the repairs themselves and the sad thing was that many of them could not afford to pay for the repairs out of pocket.  They chose the higher deductible because it made their rates cheaper and in the long run, it ended up being significantly more expensive.  If you do not have $5000.00 or even $1000.00 set aside  at any given time, then don’t choose a deductible that you can’t afford to pay.


Again, it is important to sit down with your agent when choosing your deductible and determine what it is you can afford to pay out of pocket if you ever sustain a loss to your home.  The most common deductibles are $250.00 & $500.00.  I suggest the $500.00 if you can afford that much out of pocket because there is a modest difference in premium.  Over a few years the premium difference costs more than the $250.00 difference between deductibles. 


Now that you are prepared, it is time to make the claim.  I will list the steps to do so.


  1. You need to determine if the extent of the damages will exceed your deductible as well as to determine if this type of loss is specifically denied on your policy.  The reason this is important is because you don’t want to make too many claims on your policy, regardless of coverage or payout.  Insurance companies look at that when they re-rate your premium every year.  Another thing is that some companies will drop an insured that makes a lot of claims, especially if the loss is your fault.
  2. If the claim is worth making, IMMEDIATELY (within 24 hours) call your insurance company to make the claim, especially if the loss has the potential to get worse because most policies explain that it is your responsibility to prevent further damages from occurring, otherwise you could be denied for any further damages.  For instance, water damages left sitting too long will cause would to expand and warp, break down the glues and mortar in certain flooring, as well as allow mold to grow on organic materials (such as drywall, wood, wool, some types of insulation, cotton, paper, etc…) and spread to undamaged areas, ect…  Furthermore, DO NOT throw anything away because an insurance company will not pay you for damages if they were not given the opportunity to inspect the damaged items.  I suggest putting the non-salvageable items on the side (in a garage, outside under a tarp, etc.  If an item is to be disposed, you should take plenty of photos of the items (ie:  damaged items, serial/make/model numbers).  If you have a contractor or repair person that needs to come out to repair the damages for emergency reasons(ie: with plumbing, heating, and electrical, or emergency temporary repairs to prevent further damages from occurring), MAKE SURE that they leave the damaged items for the insurance adjuster to inspect.  If that is not reasonably possible, again, take plenty of photos of the damages.


  3. At this point the Insurance company may advise you what you need to do to protect your property from further damages.  They may suggest a few companies to you.  Remember, that it is against the law for them to steer you towards a certain company.  The law allows you to use anyone you like, provided that the companies rates are within reason.  In most cases, they will give you the names of some preferred vendors/companies.  Usually, the companies are good companies that are reasonably priced.  They do not work for the insurance companies so their best interest is themselves, but they do have to maintain a positive relationship with the insurance company without losing quality.  The insurance company does not want cheap vendors who do low quality work because it will only come back to them and cost them, so generally the companies/vendors that they prefer will do good work. 
  4. The insurance company will then explain that an adjuster will call you within a few days.  Each state has a different rules and regulations as to the amount of time that the insurance company has to respond, inspect, and settle a claim.  Generally, the insurance company will respond within a few days.  You need to determine if you are experienced enough to manage the claim yourself.  If you have construction experience this should not be a problem and you should be able to meet with the adjuster and negotiate your loss.  If the loss is fairly large you may want to consider having an expert meet the adjuster.  If you have preferred contractors that you like to use, have them meet the adjuster.  Some insurance companies and adjusters are very good and you can usually have the job completed for the amount of their estimate, but others are not like that.  Some adjusters are straight out of college with barely any construction experience and others are told to look for the least expensive repair methods.  That is why it is important to have an expert with you.  I suggest a Public Adjuster as a last resort.  A Public Adjuster (PA) is essentially looking to make your claim as high as possible because they are looking to make a commission from your claim.  They will handle every aspect of your claim (Mitigation, Contracting, Negotiations, etc…).  Sometimes it is worth it, especially when you have a lot of personal items (contents) damaged by the loss.  Other times it is better to just have a contractor there to represent you because the contractor will not usually charge for an estimate whereas the Public Adjuster will usually charge anywhere from 8%-12% of the entire claim.  So if your loss was $100,000.00 dollars, the PA might take say, 10% or $10,000.00 of your loss, leaving you $90,000.00 to repair/replace your loss.  Sometimes that $90,000.00 is more than you would have received without having hired them.  This is something you will need to determine before the adjuster comes out to inspect the loss.  If the loss is fairly small (under $2500.00), you will not likely need to have an expert along.  If you have a large loss, they may be banging down your door (depending on where you live) to get your business.  Most listen to fire scanners awaiting their next big score so be careful as many are quick to take advantage of your loss.  Check the Better Business Bureau.  Ask around, ask your insurance agent.  You insurance adjuster will usually prefer that you don’t get a PA because it makes the claim drag on.  The truth is, hiring a PA for your claim can and usually will turn a smaller claim  into a 6 month or longer ordeal.  Depending on the size of the loss, having a PA negotiating your claim could and many times does take over a year to settle, in which case the extra money that they may get you is burned up over that time, so be careful when using a public adjuster (PA).
  5. The next stage in the process will be receiving your estimate.  It is important to review the estimate line by line.  A good adjuster will annotate each line so that you can understand what it is and write it in a way that is step by step as opposed to all over the place, but even so, many adjusters will still write one that is all over the place.  If you receive it and do not understand it, call your adjuster for an explanation.  Show it to your contractor to see if it makes sense to them, but before you do so, ask your contractor for an estimate and compare it to yours.  If theirs is higher than yours, than ask if they can do it for the estimate that the insurance company wrote.  If they say no, than ask if they can show you what the differences are so and then ask if they could speak to your adjuster about revising their estimate. Just because an estimate is written and send does not mean it is final.  They can always write a supplement if necessary.  If your contractor is asks the adjuster for a supplement, it will need to be a reasonable request and this request will need to take place BEFORE the repairs are completed otherwise the adjuster will not likely change their estimate because they were not given the opportunity to re-inspect the requested supplemental damage.    
  6. Just in case your contractor’s estimate is lower than the insurance adjuster’s estimate, it is important to remember that the law prevents you from making money/profiting on your claim and the insurance company has ways to prevent that from happening.  The best way for the insurance companyto prevent you from profiting on your claim is by taking depreciation on anything and everything that was damaged or destroyed.  Essentially, they will only pay at actual cash value (ACV) up front.  Although, most policies pay replacement cost value (RCV) on building damages, the insurance company will only pay you ACV up front.  If you have an ACV policy you are only entitled to ACV, period.  If yours is an RCV policy, you will need to show the insurance company proof of repairs/replacement as well as receipts for the repairs/replacements to prove that you actually paid the RCV to receive a check for the difference.  They call the depreciation on an RCV policy “holdback”.  If you get the work done for less than the RCV, you are only entitled to the difference between the ACV and the amount you actually paid less your policy deductible.  So it would be in your best interest to save all receipts and take lots pictures of the process.  Very rarely, does anyone get the repairs/replacement completed for less than ACV, but it does happen.  In those rare instances, someone either hired a low quality contractor or they did the repairs themselves.  Which brings us to the number 7. 
  7. A question I am frequently asked is, am I allowed to complete the repairs myself?  The answer to the question is yes?  Each company is different on how it handles this type of thing, but since it is illegal for you to profit on a claim, you are not entitled to the same amount of money a contractor should receive.  A general contractor is in business to make money so they often charge Overhead and Profit (O & P).  Most of the time this is about 10% on top of the cost to repair.  Since you are not allowed to profit, most insurance companies will not allow you to receive the O&P because you are not a contractor doing the work as a business.  If you are handy, you can, in most cases, cut the cost of repairs, but you will likely be unable to recoup your holdback because you will not be able to provide a receipt for the labor that you performed.   Ultimately, this is something you will have to weigh out for yourself.  My suggestion is to use a professional unless you are very handy and have the time to do the work yourself.  If the insurance company has a list of preferred contractors, in most cases (provided your company does not pride themselves on low rates), as mentioned before, it is perfectly fine to use them.  In fact, the claim will usually go much smoother if you do use their preferred vendor.  Otherwise, use a contractor of your choice.
  8. Sometimes people do not get the repairs completed or they do the work themselves and cut corners (like cleaning a carpet instead of replacing it) and they do not save the receipts for the repairs and then they have another loss which overlaps the prior loss.  I see this a lot with hail damage to roofs and siding, as well as carpet damages.  During hail season in the south, hail storms have come in a month or two apart and the insured hadn’t yet replaced the roof from the 1st event. In the case of carpets, the insured had a water/sewer loss which the insurance company thought it would be better to replace the carpet for sanitary reasons or because the carpet was damaged beyond repair, but rather than replace the old carpet the insured choose to dry it out and clean it.  If an insurance company pays you to replace something and you do not get it replaced or have receipts to show that it was, they will very likely not pay for the damaged item again.  As a side note, if you ever have a covered sewer loss, if sewage(Cat 3/black water) touches anything porous, or organic, it needs to be thrown out, this goes for carpet, clothing, sheetrock, insulation, laminate flooring, paper, cardboard, particleboard/MDF furniture, upholstered furniture, ect…. Materials made of metal, concrete, vinyl, plastic and solid wood can be cleaned.

Tips and Warnings:


It is VERY IMPORTANT to be as honest and helpful as possible with your insurance adjuster.  Your adjuster is just doing their job and they are dealing with other people’s losses 5 days a week 10 hours a day and it is not the most pleasant job, by far.  Again, not all adjuster are great at what they do, but (in rare instances) your attitude towards them could mean difference between coverage or denial, as well as how much you get paid.  Remember, they write the checks.  This may not be the most professional business conduct from your adjuster, but your demeanor can be a factor in the outcome of your claim.  Many times adjusters have gone into an insured’s home and the insured treated them terribly when the adjuster was courteous and professional with them, although, there are some unpleasant adjusters and I am not speaking about them.  Other times the insured is very pleasant and a pleasure to work with.  When the claim is black and white, it is what it is, but if there is something the adjuster could do to go the extra mile, they very well may for that nice person, because they were so nice to the adjuster.  Whereas, the mean, nasty insured, usually ends up getting the bare minimum service.  As long as the adjuster does what is required by the state and their employer they have done their job.  Adjusters are human and even the most unbiased of them can be swayed by the negative, offensive attitude of an angry insured.  Remember, yours is not the only claim that your adjuster is working on and most adjusters are so overloaded with claims (especially if the weather has been bad) that the claims process can often take longer than you’d like it to.  If your claim is completed in less than 2 weeks, feel lucky because 2-3 weeks is the norm PA involvement.


Last, but not least, insurance claims are regulated by the state government.  Not only are insurance companies held accountable, but so are insureds.  Occasionally, an adjuster has to deal with fraud.  Fraud is a very serious thing when it comes to insurance claims.  If you are the cause of the loss, but are afraid to admit it, don’t worry, accidents happen.  That’s why they are called accidents.  Deception of any kind is considered fraud and is punishable by imprisonment and severe fines.  I can’t stress enough the importance of being 100% completely honesty with regards to your claim.  Most seasoned adjusters have seen it all. They average carrying a caseload of anywhere between 300-500 claims per year so there is very little that they haven’t seen.   Although not all damage is identical, it is fairly consistent.  If an adjuster suspects that there is even a hint of something unusual about your claim, they will assign it to a special investigator, who will  investigate any potential fraud.  In most cases, these investigators (depending on the type of loss) were former/retired police detectives or fire investigators.  Most of them are highly skilled at what they do and in most cases, can determine if there is any fraudulent activity.  So, again, try to be as honest and helpful with your adjuster as possible and it will make the process much smoother for you and your adjuster. 


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