Can my contractor “eat my deductible?”
The surprise expense of an insurance deductible is a good news/bad news scenario. On the one hand, your insurance is taking care of a repair that would otherwise cost you multiple thousands. On the other hand, you still have to come up with some cash. So it’s understandable that homeowners are often excited when a contractor knocks on the door with the perfect solution…”we can just eat the deductible!”
But is that possible? Is it legal?
Short answer: NO
So what does a cash-strapped homeowner do? Thankfully, there are several options available to address this concern that give your pocketbook some relief and stay within the law.
The first thing we have to understand is what a deductible actually is. Insurance companies want to prevent frequent a frivolous claims so they establish a dollar amount threshold for paying out on a covered loss. This is called a deductible. It’s the amount of the loss that a policy holder is responsible for covering. Think of it like a co-pay with your medical insurance.
Your insurance company will determine the dollar amount of your loss. In other words, how much it will cost to replace or repair damage to your home. Most people have experienced this with a vehicle. When you have a wreck or hit a deer, the insurance company inspects the vehicle and writes you a check for the damage, less the deductible. So if there’s $5000 in damage and you have a $500 deductible, you get a check for $4500. This is where homeowners claims differ most from auto claims. Once you get the check for your car, you can shop around for a body shop and get the best price for the repair and keep the leftover money or choose to do nothing at all and just pocket the insurance money. This is possible because car insurance pays out in a single payment and for a relatively small amount for minor or cosmetic damage. Homeowner’s insurance is critical because it covers a large, appreciating asset that needs to be protected from further damage.
This is why homeowner’s claims pay out differently. The insurance company wants to be sure that the money is actually going to repair damage to the house. Otherwise, they might be spending tens of thousands of dollars only to be on the hook for further claims because the original issue was never fixed. We will talk about the specific process of how payouts are made another time, the important thing to know now is that insurance companies do not pay the full amount of the claim until they receive evidence of the repair. Until they get an invoice from a contractor or pictures of the work (we always do both), they wont’ let go of that money. If they do not receive those things, or if you just keep the initial partial payment, your home (or the specific part of your home in question) will no longer be insured.
This is where your deductible comes in. When an insurance company calculates the value of damage to your home, they will subtract the deductible from the total. So if a hail storm caused $20,000 in damage and your deductible is $1000, the most they will pay is $19,000. “But Derek,” I hear you exclaim, “Can’t I just find a contractor to do the work for $19,000 and avoid paying the deductible?” Jake from State Farm may look friendly, but he ain’t stupid. Insurance will only payout what they are invoiced by the contractor MINUS THE DEDUCTIBLE. In our little scenario, when the contractor invoices insurance for $19,000, he will receive a check for $18,000. “Ah”, you exclaim once more, “Then the contractor should just invoice insurance for an extra $1,000 and everything is good, right?” Congratulations, you just became a party to insurance fraud. Do people do it this way? Yes. Do they get away with it? Yeah. But is it worth it? No. It’s not worth it for the homeowner and any contractor willing to do it isn’t someone you should trust working on your house.
The good news is, there are some ways you can LEGALLY reduce or eliminate your deductible on an insurance claim if you know how. The better news is WE KNOW HOW. No matter your situation, we can work with you to help ease the burden of a sudden expense like insurance deductibles and costly repairs. Give me a call and I can walk you through it.