How to negotiate an insurance settlement

It’s difficult enough when an accident or disaster wreaks havoc on your home or your car. When you file a claim with your insurer and its damage estimates are much lower than your actual losses, it can be especially frustrating.

The need to negotiate with auto and home insurers is surprisingly common. Nearly one-fourth of those who’ve submitted claims to their home insurance companies have negotiated the settlement amounts, according to market research company J.D. Power and Associates, most often regarding the amount of damage to be covered and additional living expenses.

Taking stock of your losses

Putting a price on what you’ve lost may be a difficult and emotional process. But in the end, while companies may be staffed with people who sympathize, an insurance claim settlement covers only the cost of your belongings.

how to negotiate an insurance settlement

“You should be paid for everything you lost, but not a penny more,” says Kevin Foley, an independent insurance agent in New Jersey. “Negotiation begins when the insurance company offers a lower figure because they believe the loss is overstated."

When you file a claim, you tell the insurance company, through a statement of loss, exactly what you lost and how much it’s worth or how much it’ll cost to replace, Foley says. “Negotiation begins when the insurance company offers a lower figure because they believe the loss is overstated,” he says.

Exactly how much is covered depends on your insurance policy, so make sure you know whether the damage is covered under the terms of your policy, how long you have to file a claim, how long it will take to process the claim and whether you’ll need estimates for repairs, the Insurance Information Institute recommends.

Some policies cover how much it would cost to replace your belongings while others cover the actual cash value of your belongings, factoring in their depreciation over time, says Mark Carrasquillo, account executive at independent insurance broker E.G. Bowman Co. in New York.

What to have on hand

“The best advice that I can give is to always to document the damage. Take photos,” Carrasquillo says.

For a home insurance claim, look at every room in your house, and make a complete inventory of the damage you find, insurance company State Farm advises. Be sure to note the brand names and the model numbers of the items that have been damaged, how old they are, how much you paid for them and where you bought them, State Farm says.

“We will need to know if your house is damaged so severely that you can't live in it,” State Farm says.

If you end up staying at a hotel because of the damage to your home, keep your receipts. Home insurance policies cover your additional living expenses in the event that your home is damaged in a disaster that you’re insured against, the Insurance Information Institute says.

Auto insurance claims are another story, and they’re generally pretty cut and dried, Carrasquillo says.

An auto insurance claim requiring negotiation might involve an insurer wanting to pay for a generic or aftermarket, non-factory part for your damaged car. Doing so might void a car’s warranty. In that case, an insurer is likely to agree to covering the more expensive factory part unless the insurer explicitly outlined in your insurance policy that it wouldn't be covered.

Whatever the case, you should keep track of each loss or resulting cost you incur.

“Your best defense is to itemize your damage and be able to document the cost of replacement. Two or more price references should be enough backup. If you're making an auto damage claim, get a second estimate for your damage,” Foley says.

Getting ready to negotiate

Listing the extent of the damage to your property can be painful and tedious, but “it's that tediousness that they’re relying on,” Carrasquillo says of insurers. They bank on you being turned off by the monotony; when you don’t take stock of all of your losses, insurers will just estimate them and you might not get all that you’re due.

Your insurance company will have you work with at least one of its claims adjusters. Give the adjuster your inventory of damaged or destroyed items, plus your receipts, and don’t throw out your damaged items until after the adjuster has visited, according to the Insurance Information Institute.

When you’re ready to negotiate

Negotiating with your insurer over smaller claims isn’t as difficult as it is for large claims. If you’re claiming, say, $2,500 in damage, the insurer might just cut you a check without further argument, Carrasquillo says. For the insurer, "is it worth the money time and effort to dispute a small claim?” he says.

And companies actually are concerned with retaining their customers, so the sooner a claim can be settled, the better for both parties. Insurers know that difficult settlement negotiations can mean lost business.

"When settlement negotiations occur, claimants are more likely to consider switching insurers in the next 12 months," according to a recent report from J.D. Power and Associates. In fact, the fewer company representatives a customer has to speak with, the better, the research company found.

For policyholders, "no other aspect of their experience with their insurer is more meaningful than the claims process. This moment of truth may prove to the insured that the insurer values their relationship and will be there … if a loss does occur. By not meeting the claimant’s expectations, which may result in a negotiation, the claimant is left dissatisfied and more likely to shop” around for something better, says John Tenerovich, insurance research supervisor at J.D. Power and Associates.

However, if you have the paperwork to prove what your claim is worth, that’s something your insurer can’t refute, Carrasquillo says.

Do I need a lawyer to help me negotiate?

Usually only extreme cases require legal counsel.

If you don’t get the amount you know you deserve, “talk to the agent or company representative who sold you the policy, let the agent know that you are dissatisfied and explain the specifics of your problem,” the Insurance Information Institute recommends.

If that doesn’t work, contact the claims manager of the company, provide them with a written explanation and copies of your documentation. And if you still have trouble getting the proper settlement, your state insurance department should be able to help.

If that’s not enough, then go to a lawyer, but “get the fee structure in writing before you decide to pursue the case,” the Insurance Information Institute says.

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