If the unthinkable happens and your home is damaged, it is in your best interest to initiate an insurance claims process as soon as possible. The insurance claims process can be somewhat complex if you have never negotiated it before, particularly when it comes to planning how and when you will pay contractors to repair your home. Depending on your specific financial arrangements, compensation for the damages to your home may be delivered as a check to you, your mortgage lender or both. Knowing exactly where your funds will be delivered can help you establish an efficient timeline for getting your home back on track.
Although it's possible for an insurance company to issue a check to your contractor, it's more common for the insurance claim check to go to either you or your mortgage lender.
The Adjustment Process
Before you can receive compensation for the damage to your property, an adjuster from your insurance company will inspect your home to assess the extent of the damage and determine what money should be paid. This process can be initiated as soon as you file your initial claim with the insurance company. Most often, you will receive an initial check from your insurance company at this point which will allow you to begin hiring contractors while the rest of your claim is processed. Keep in mind that the opinion of the adjuster is considered authoritative. This means that the adjuster's evaluation of the damage to your home will significantly influence the amount of funding you can receive.
If you currently have a mortgage on your home, checks from your insurance company will likely be made out to both you and them. The reason for this is as follows: given the fact that the mortgage lender has a vested interest in assuring the quality of your home, they will likely choose to ensure that the repairs needed for your home are actually being undertaken. It is not uncommon for mortgage lenders to place funds received from the insurance company in escrow until information is given to them regarding the designated contractor and the work to be completed.
In some scenarios, insurance companies may choose to pay the contractor directly rather than transfer money to the homeowner. This process is usually undertaken at the request of the contractor, who is required to provide you with a "direction to pay" form. Given the contractual nature of this document, it is essential that you thoroughly review it in order to ensure that the terms of payment are compatible with your own interests.
Ryan Cockerham is a nationally recognized author specializing in all things business and finance. His work has served the business, nonprofit and political community. Ryan's work has been featured on PocketSense, Zacks Investment Research, SFGate Home Guides, Bloomberg, HuffPost and more.