Cash settlement insurance claims explained

Whether you’re making a claim for fire damage, a flood, a burst water pipe or something else, every homeowner hopes that their insurance claim will end in a fair settlement. But it isn’t as straightforward as being reimbursed for the costs and damage incurred – there are different ways you can choose to settle your claim.

If you’ve made a claim on your home insurance, your insurer may have offered you a cash settlement. On the one hand, this means that your insurance claim was accepted and you’ve succeeded in securing at least some of the money you are entitled to. Depending on the circumstances, however, it may not necessarily be the best outcome for you and you may not end up with everything you’re entitled to.

Here is everything you need to know about cash settlement insurance claims and whether it will give the best outcome for you and your home.

What does cash settlement actually mean?

When you make a claim on your home insurance and it is accepted by your insurer, you will receive a settlement to cover the loss and damage incurred. If your insurance company offers a cash settlement, it means they will pay you the agreed sum in monetary compensation. A cash settlement is a straightforward financial transaction where one party (i.e. the insurance company) pays money to another (i.e. the homeowner). Some homeowners opt for a cash settlement when they decide they want to carry out the rebuild themselves or want to incorporate the cash into a major project, such as a total rebuild. Some people choose a cash settlement when they are significantly underinsured and choose to put the money into the repairs they want to prioritise. Another reason some opt for a cash settlement is when they want to sell the property without carrying out any repairs, take a reduction in the sale price and have the cash settlement instead of rebuilding themselves.

In the majority of cases though, a cash settlement will not be the most beneficial outcome for a homeowner and the main reason for this is the reduction in the settlement value you will receive. Insurers will not give you the cost of VAT on the repairs, so there is an instant 20% reduction in the value of a cash settlement. The insurance company will also only give the equivalent cash value to the cost that they would have paid for the rebuild to be carried out by one of the builders on their panel. Builders often offer insurers preferential rates, as in return they may receive additional future work through them. They will be working to rates that the vast majority of homeowners would not be able to negotiate with a building company.

Alternatives to cash settlement

Some homeowners opt for the insurance company to pay directly for repairs to the property and replacement of damaged contents. In this situation, you are entitled to appoint any contractors or services needed to return your property to its previous state, including surveyors, builders or other property specialists.

More often than not, a claim will be settled by a combination of building repairs, some contents replacements and a final cash settlement. Homeowners will tend to find themselves in the best position with a combination approach as they can be confident that all remedial works necessary will be carried out and they have less to manage themselves when contractors are appointed as part of the claim. They also have the freedom of a cash settlement to replace their contents as they see fit.

All options are supposed to ensure you end up in the same financial situation as before the event that damaged your home and contents. It may not always be obvious which option is best for you at the outset, however Morgan Clark Loss Assessors are experienced in securing the best settlements for our clients, no matter what settlement option they choose.

If you choose to work with a Loss Assessor like Morgan Clark, we can help manage all steps of the insurance claims process. That includes handling any contractors hired in a non-cash settlement as well as liaising with the insurance company to maximise your claim settlement – in whatever form that may be.