How to Negotiate With Your Insurance Company

If you want to negotiate with your insurance company effectively, review your policy and document all damages. If response times become long, remain patient but persistent while keeping records of all communications. 

Expect initial lowball offers, and be ready to counter with evidence supporting your settlement request. Never admit fault during discussions. If negotiations become difficult or unfair, seek legal advice.

How Do Insurance Companies Negotiate Settlements?

Negotiating effectively with an insurance company for the best settlement starts with a clear understanding of the process. 

After you file a claim, the insurance company will review it. If it’s approved, they’ll respond with a settlement offer based on their investigation and method of calculation, which you may not agree with. However, you don’t have to accept this offer. You can offer a counter with evidence that supports the need for a higher amount of coverage. 

Policy Coverage Assessment

The first step in negotiation is establishing which aspects of the claim are covered by the insurance policy. This involves a thorough review of the policy’s terms, conditions, and coverage limits. Settlement amounts can’t surpass the coverage limits of your policy.

Investigation and Findings

Insurance claims adjusters typically perform an investigation to assess the validity of a claim and the level of damages. This often includes gathering evidence and reviewing documents, interviewing the parties involved, and determining liability (who’s at fault). 

Damage Assessment

Following their investigation, adjusters assess the damage and set a dollar amount based on various valuation methods, such as actual cash value (ACV) or replacement cost value (RCV), depending on the terms of the insurance policy. These two valuation techniques are defined as follows:[1]

Actual Cash Value (ACV)

• At the time of loss, ACV is the estimated market value of damaged property, taking depreciation into account. It represents its fair market value while accounting for its age, condition, and wear and tear.
• The formula for ACV typically looks like this: 

ACV = Replacement Cost – Depreciation

• Depreciation refers to the gradual loss of value over time, and it can vary based on factors such as age and condition of property. For example, an older laptop would have a lower ACV than a brand-new one.

Replacement Cost Value (RCV)

• RCV measures the estimated cost of replacing a damaged item with a new or similar one without accounting for depreciation. This is aimed at providing full compensation to restore to a pre-loss state.
• RCV tends to be higher than ACV because it doesn’t take depreciation into account. It includes the cost associated with replacing damaged property with its equivalent item.

When the adjuster assesses the value of the damage, they may use either ACV or RCV, depending on the terms of the policy. Some policies provide ACV coverage by default, while others offer RCV coverage or give policyholders the option to purchase it as an endorsement.

Initial Settlement Offer

Depending on the type of insurance, your insurance company might make an initial settlement offer that’s lower than you hoped for. Don’t feel pressured to accept the first offer immediately.

Offer Evaluation

Carefully assess the initial offer in comparison to your documented losses and the coverage provided by your policy. Determine whether the offer adequately compensates you for your damages. If not, be prepared to negotiate.[2]

Counteroffer

Calculate your total damages, including medical expenses, property damage, lost income, pain and suffering, and any other relevant costs. Keep in mind that not all of these will apply in all situations, and the damages you can claim will depend on the insurance type. If the insurer’s initial offer is insufficient, respond with a counteroffer that reflects your calculated cost of damages and the coverage outlined in your policy.[3] 

Be clear and concise in your communication. Submit your requested amount with documentation and evidence. Lisa Koosis, a former claims specialist, says, “To maximize your chance of a successful negotiation, make sure your documentation is thorough. Take pictures from multiple angles, including close-ups, and whenever possible, photograph damage in daylight.”

Follow Up

The insurance provider may request more specific evidence or an explanation of your documentation. Be prepared to submit additional repair estimates, receipts, and other relevant documentation that demonstrates the validity of your claim as you negotiate back and forth.

Whenever possible, communicate in writing (email or formal letters). This creates a paper trail that can be useful if the negotiations become contentious or you need to take legal action later. Lisa Koosis, a former claim specialist, suggests, “If you have to communicate by phone, always get the name and position of the person you’re speaking with, and document the main points of the conversation. Record the call if you can do so legally.”

Compromise or Move Forward

If negotiations stall or you believe the insurance company is acting in bad faith, consider consulting an attorney who specializes in insurance claims. They can provide legal guidance and represent your interests.

If you feel the insurer is being fair or you receive a settlement that’s closer to what you asked for, you may choose to compromise.

How to Effectively Negotiate With Your Insurance Company

Effective communication and thorough preparation are keys to successfully negotiating with your insurance provider. The following strategies can help:

1. Have a Settlement Amount in Mind

Before initiating settlement discussions, have an amount in mind based on documented professional estimates. Your estimates should cover expenses caused by property damage, as well as any related costs, such as living expenses incurred if you need to vacate your property while repairs are being done.

Thorough preparation will help you negotiate more effectively. It will also deter you from accepting an amount that doesn’t adequately compensate for your losses or needs.

2. Know That Initial Offers Tend to Be Low

Initial offers from insurance companies tend to be intentionally low as part of their strategy to minimize payouts. Often, initial offers fall well below your rightful claim value. The first offer shouldn’t be accepted without seeking advice and considering all costs.

3. Communicate All Types of Damage

Comprehensive documentation and an in-depth examination of damages from all angles can significantly decrease the chance of lowball offers. You may need to show evidence of monetary loss and extra costs incurred by damage to justify your claims. It’s essential to provide as much supporting evidence as possible.

4. Don’t Admit Fault

Never admit fault when speaking with insurance companies. Their investigators may ask questions that place blame squarely on you, removing the validity of your claim and their need to pay any amount at all. 

Instead, focus on documenting damage. Written and photographic evidence can protect you if they claim you were negligent or otherwise at fault. 

5. Have Proper Paperwork and Evidence Ready

Prepare all documents and evidence before filing an insurance claim. Without this step, you may inadvertently set up roadblocks and delays to receiving money that’s rightfully yours or potentially cause the claim to be denied altogether. 

Keep things organized so you can easily find what you need when you need it throughout the negotiation process. Don’t get rid of anything, even if you think you have duplicates or won’t need it. Lisa Koosis, a former claims specialist, suggests, “If you don’t have receipts for belongings that have been damaged, search online for similar items. Many insurance companies will accept screenshots of retail product pages with pricing in lieu of receipts.”

6. Seek Your Agent’s Help

Part of an agent’s responsibility is to help you navigate the claims process, including negotiations. They can often function as intermediaries.

7. Hire an Independent Adjuster

You have a right to hire an independent adjuster who can review your claim, provide a third-party assessment of damages, and negotiate on your behalf.

8. Seek Legal Counsel

If you find yourself in a situation where you and your insurance company can’t agree on a fair settlement, and their offer is much lower than what you expected or need, consider seeking legal counsel. Speak to an expert homeowners insurance lawyer who can explain your rights, negotiate on your behalf, and even pursue legal action to help you secure maximum compensation for your loss.

If you use an attorney, you may end up with a far higher settlement amount than you could have gotten on your own. While there are fees involved with hiring an attorney, many work on retainer, so they take a percentage of your final settlement amount. If they can get you substantially more, it’s well worth the contingency fee.