How to Negotiate With Your Insurance Company
If you want to negotiate effectively with your insurance company, start by reviewing your policy and documenting all damages. If there is a long response time at any point, 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 respond with a settlement amount based on their investigation and method of calculation, which you may not agree with. You do not have to accept this offer. You can instead choose to offer a counter with evidence that supports the need for a higher amount of coverage.
Policy Coverage Assessment
The first step in negotiation is to establish 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 cannot surpass the coverage limits of your policy.
Investigation & Findings
Insurance claims adjusters typically perform an investigation in order to assess whether a claim is valid and to assess its severity. This often includes gathering evidence and reviewing documents, interviewing the parties involved, and determining liability (who is 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 their 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 like age and condition of property. For instance, an older laptop would have a lower ACV compared to one that is brand new.
Replacement Cost Value (RCV)
- RCV measures the estimated costs associated with replacing a damaged item with one that is new or similar without taking depreciation into account. This is aimed at providing full compensation to restore to a pre-loss state.
- RCV tends to be higher than ACV because it does not 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 based on the terms of the insurance 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
Expect the insurance company to make an initial settlement offer that is lower than what you would like. Rest assured that it’s normal practice for them to do so, and 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 if 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. 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.
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 any 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 if you need to take legal action later.
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 that the insurer is being fair or you receive a settlement that is 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 two keys to successfully negotiating with your insurance provider. Here are some strategies that 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.
Preparation like this will help you to negotiate more effectively. It will also deter you from accepting an amount that does not 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. Oftentimes, initial offers fall well below your rightful claim value. The first offer should not be accepted without first 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 very lowball offers. You may need to show evidence of monetary loss and extra costs incurred by damage to justify your claims. Again, provide as much supporting evidence as possible.
4. Do Not 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 & 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 in such a way that you can easily find what you need when you need it throughout the negotiation process. Never get rid of anything even if you think you have duplicates or won’t need it.
6. Seek Legal Counsel
If you find yourself in a situation where you and your insurance company just can’t agree on a fair settlement, and you believe the offer they’ve made 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.
By using an attorney, you can often 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 are able to get you substantially more, it’s well worth the contingency fee.
Sources
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Post Disaster Claims Guide. National Association of Insurance Commissioners.
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Insurance Claim Tips. Indiana Department of Insurance.
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When to Hire a Lawyer for a Home Insurance Claim. (August 2023). Forbes.
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Frequently Asked Questions About Appealing an Insurer’s At-Fault Accident Determination. Mass.gov.