Before accepting a cash settlement, you should take the time to ask yourself whether this is the right option for you. While a cash settlement might seem like a good option, there are many risks associated with this decision. Here are some things to consider before cash-settling your insurance claim.
Has your insurer offered you a cash settlement for your property insurance claim? A settlement is a lump sum of money given to you by the insurer to settle whole or part of your claim.
Before accepting a cash settlement, you should take the time to ask yourself whether this is the right option for you. While a cash settlement might seem like a good option, there are many risks in relying on a cash settlement. Importantly, a cash settlement might cause you to lose certain insurance benefits. To help you future-proof your entitlement, this article outlines some things you might wish to consider before cash-settling your insurance claim.
Price of repair can vary
In a cash settlement, quotes to repair property are fixed to the costs at the time of damage. If repairs are delayed or take a long time, rising labour and materials costs might significantly raise the actual cost of fixing the property. Claimants should be aware that their cash settlement entitlement is fixed to the amount of the initial assessment. If you cash settle the claim, the insurer is not obliged to cover the job at a higher cost.
Similarly, the settlement amount will be based on an assessment of the damage caused to the property at the time. In some circumstances, damages are not always obvious when the damage assessment takes place. For example, in weather damage claims, an insurer’s assessment might not account for latent mould, or structural damage problems that show up later on. These issues can cause hundreds of thousands of dollars worth of extra damage. If you cash settle the claim, the insurer is not obligated to cover these additional costs.
Once you cash settle an insurance claim, you are no longer covered by the contract of insurance. Therefore, there is no warranty on any repairs undertaken with the cash settlement sum. If the repairs are unsatisfactory, or if they have issues in the future, you will need to cover these costs yourself. There is no option for recourse against the insurer.
If you are unable to live in your home while it is being rebuilt or repaired, home insurance policies offer additional cover for temporary accommodation. A cash settlement will end the claim, so the settlement amount does not include this accommodation cover. Therefore, if a claim is cash settled, claimants will need to find and pay for their own alternative accommodation arrangements.
While a cash settlement might seem like a quick and easy option, it can often disentitle you from claiming for future damage, and leave you out-of-pocket in the long run. Therefore, you should always make sure to consider your circumstances and weigh up your options before accepting a cash settlement.