People rely on insurance coverage in numerous expensive, challenging situations. For example, if a major storm damages someone’s home, they may rely on their homeowner’s insurance policy to pay for repairs. If a car crash puts someone in the hospital, they probably expect to file a claim against the policy ensuring the driver who caused the wreck.
Many people have heard horror stories about insurance disputes that leave people without necessary funds for months. Someone who receives a prompt settlement offer from the insurance company may feel relieved because they won’t have to fight to get coverage for their losses. Unfortunately, settlement offers can leave people without the protection they require and could also render them incapable of requesting additional support from the insurance company.
How settlements work
A settlement offer is an acknowledgment from the insurance company that someone has grounds for a claim. The settlement offer is for an amount below the policy limits. The limits established when someone first obtains insurance coverage dictate the maximum amount that the company could pay for a covered claim.
A settlement is often an offer for far less than that amount. The insurance company can end its financial obligation to the claimants when they accept the settlement. Even if the settlement is far below the available amount of coverage and significantly less than someone’s total costs, they likely cannot demand additional compensation after signing a settlement agreement or cashing a settlement check.
It is, therefore, crucially important that anyone negotiating a potential settlement understand what their full costs could likely add up to and how much coverage is available through the policy. They may need to counter the original offer with a more realistic figure and might need to negotiate aggressively to receive a reasonable amount of compensation given the scope of the losses incurred.
Those who already feel stressed because of an injury or damage to their homes could easily make a mistake by assuming that an insurance company would only offer a settlement that is in their best interests. However, the goal of offering a settlement is often to limit the company’s financial exposure, not optimally compensate the party filing the claim. As such, understanding the risks inherent in an insurance settlement scenario may help people advocate for themselves and secure the support they need while dealing with an insurance company in the wake of a challenging situation.