Assignment of Benefits for Homeowners

An assignment of benefits (AOB) is a contractual agreement that enables a third party to access insurance benefits on behalf of the policyholder.[1] When the policyholder signs an AOB agreement, it grants the third party the authority to initiate an insurance claim and receive reimbursement directly from the insurance company. 

Assignment of benefits for homeowners means that any contractors, plumbers, or other professionals who perform work to repair your home or property after a claim can work with your insurance provider directly to get compensated. You step aside as the middleman, and they work together.  

While AOB can work with most types of insurance, not every insurance company will allow it. The party performing the work (the insurance claimant) and your insurance company must both agree to the process.

How Do Assignment of Benefits Work?

AOB is a straightforward process that simplifies insurance billing for both service providers and policyholders. Here is how an AOB works.

Coverage Verified

Before hiring a service provider, the policyholder must make sure that the service is covered by their policy by checking in with the insurance provider. Homeowners insurance pays for the cost of damages or loss due to a covered event, as outlined in the policy. 

Mutual Agreement

The policyholder and the service provider agree to utilize an AOB form.[2] This agreement authorizes the service provider to handle direct billing to the insurance company for the services provided.

Billing Submission

With the AOB form in place, the service provider submits all relevant documentation, including invoices and service records, to the insurance company for payment. In many cases, this includes the initial claim with documentation of the damage and an explanation/proof of how it happened.

Claim Evaluation

The insurance company thoroughly reviews the submitted documents to verify that the damage itself and the provided services are indeed covered under the policy terms and that the contractor provided those same services.

Direct Payment

If the services are eligible and covered by the insurance policy, the insurance company promptly issues payment directly to the service provider. This payment aligns with the agreed-upon costs as outlined in the insurance policy.

Policyholder’s Responsibility

Generally, the policyholder is only responsible for any deductibles, copays, or out-of-pocket expenses specified in their insurance policy.[3] They are relieved of the responsibility of managing the billing process or handling reimbursement paperwork.

Service Rendered

The policyholder receives necessary services covered by their insurance policy, such as medical treatment or repairs.

Example of an Assignment of Benefits

A hurricane hit Rachel’s town, severely damaging the shed where she keeps her tools and lawn equipment. The shed is covered under her home insurance policy, and she files a claim with the insurance provider quickly with photographs and documents that show the damage and provide proof of the value and potential cost to rebuild. The insurance provider approves the replacement of the shed.

To streamline the process of paying the contractor, Rachel signs an AOB allowing the contractor to bill the insurance provider rather than billing her. This means that if there are any disputes about the costs of materials, timeliness of payment, or any other issues, those will happen between the insurance company and the contractor, and Rachel will not be required to step in. 

Additionally, rather than having to pay the contractor out of pocket and wait for a reimbursement check from the provider, the contractor will be paid directly by the insurance company, so Rachel doesn’t have to pay the cost of the shed replacement.

When Would You Use Your Assignment of Benefits?

AOBs can be useful in various situations:

• Assign benefits to contractors for property damage repairs, simplifying the insurance claim process. It can often expedite the process and help claimants to get paid faster.
• AOBs can help in emergencies, ensuring timely payment without paperwork hassles. This can be particularly helpful during already high-stress times. 
• Consider AOBs for complex claims with multiple providers or extensive paperwork. You’ll have less to manage if the parties work together directly.
• You can use an AOB for a range of professionals relating to a homeowners insurance claim, such as plumbers, roofers, window repair specialists, landscapers, carpenters, and restoration specialists.

Pros & Cons of Using Assignment of Benefits

Assignment of Benefits: Pros & Cons to Consider
Pros	Cons
It simplifies the claims process, reducing paperwork for policyholders.	Policyholders may have limited control over claims and disputes.
Service providers can bill insurance companies directly, ensuring timely payment.	With AOBs, the insurance company may not agree to cover the full cost, and the contractor may sue the insurance company. You may be dragged into litigation later. The company may also deny the claim altogether.
It allows policyholders to access needed services, even when funds are limited.	Your lack of visibility into final bills may mean you’re surprised when your insurance premiums are raised.
	There is a possibility that the assignee can pocket any additional funds you may be due as part of the settlement.

Making Sure Your AOB Is Safe & Secure

To ensure the safety of an AOB:

• Check the reputation of the service provider and seek multiple quotes for services.[4]
• Carefully examine the AOB terms, ensuring clarity and alignment with your insurance policy.
• Beware of high-pressure tactics and take your time to decide.
• Confirm the provider’s licensing and insurance.
• Get multiple estimates in writing for the needed work.
• Consult an attorney or insurance advisor if you have concerns.
• Keep records of communication and contracts.
• Inform your insurer about the AOB and their requirements.
• After services, check the results against AOB terms and your satisfaction.
• Make sure the AOB has appropriate cancellation provisions in place so that you can rescind the agreement in writing in certain circumstances.

Assignment of Benefits Being Abused: What Are My Options?

While an AOB can offer convenience, the process may be susceptible to misuse by those who would take advantage of the insurance company and overcharge for services or claim to have provided services that they did not actually perform. Lisa Koosis, a former claims specialist, warns, “Be watchful for AOB scams, particularly after natural disasters such as earthquakes or hurricanes. Red flags include contractors who offer something for nothing, make exaggerated claims of damage or present broadly worded contracts.”

If you suspect AOB abuse or fraud, consider these options.

Contact Your Insurer 

If you suspect AOB abuse, promptly reach out to your insurance company. Express your concerns and provide any evidence you have to support them. Insurers have units dedicated to investigating potential fraud or AOB misuse.

Report Fraud

If you suspect fraudulent activities, report the issue to your state’s insurance fraud bureau or department, which investigates such cases and takes legal action when appropriate. However, fraud is generally difficult to prove. 

Seek Legal Counsel

Get advice from an attorney who is experienced in insurance claims to navigate your specific situation. Be aware that pursuing legal action can be costly and lengthy, so it generally won’t be your first course of action. But if the process gets complicated, it’s helpful to have a legal professional on your side. Lisa Koosis, a former claims specialist, says, “If you need legal assistance but can’t afford it, try calling your local law school. Many of them offer free clinics where you can get a consultation and, sometimes, pro bono representation.”

Know About Potential Litigation

If the contractor or service provider isn’t paid by your insurance company, they might pursue legal action against your provider, leading to a dispute that may require your action or response.

Frequently Asked Questions About Assignment of Benefits (AOB) for Homeowners

We have compiled some of the most frequently asked questions about AOBs and how to use them most effectively, so you can make the most informed decisions about your situation.