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How do home insurance companies pay out claims?

If your home is damaged, your home insurance company will send out an adjuster to look at the damage. The company will then determine your settlement amount or how much you’ll be reimbursed to make repairs.

A homeowner’s insurance policy pays for losses or damage to your property if something unexpected happens. Once the insurance company sends an adjuster and evaluates the damage to your home, they’ll pay a settlement amount in either replacement cost or actual cash value.

Replacement cost gives you funds to cover the costs to rebuild your home or repair damages using similar materials. Actual cash value gives you funds to repair or rebuild based on the value of your home, considering its age and condition or market value. Keep in mind that the market value of your home may not match the replacement value. That’s because, in some locations, the materials and labor that go into rebuilding your home may be less than the overall value of your property.

Your homeowner’s insurance company will likely pay your settlement with a check made out to both you and your mortgage servicer or lender. Most mortgage agreements require this to protect the lender’s interest. Typically, your servicer will release a portion of the settlement money before work begins so you can hire a contractor. As the work progresses, the servicer will typically release more money. The rest will be released once the job is finished and the home passes inspection.

If you have a mortgage, you will still be responsible for making your payments while your insurance claim is paid out. Learn what to do if you’re having trouble making mortgage payments due to a disaster or other emergency.