When you make a claim on your insurance policy – whether it’s for your car, your home, or your business – your insurers may offer you a cash settlement.
In this post we’ll discuss what this entails, to help you decide whether a cash settlement is right for you.
If you’ve got any questions about any aspect of your insurance, our friendly advisors are always on hand to help. For more information, call us on 0208 8290 9086 or you can email the team direct at personal@anthonyjones.com.
What is a Cash Settlement on an Insurance Claim?
If your insurer offers you a cash settlement, it means they’re offering you a sum of money to cover the costs associated with your claim. Depending on the sort of claim you’re making, this could be money to repair your car, or to renovate your home or place of business following a fire, a flood, or a break-in.
Why Do People Choose a Cash Settlement?
The main benefit of a cash settlement is that you’re free to use the money in any way you see fit.
There are a few scenarios where this can be helpful:
- You want to oversee the repairs yourself. A cash settlement gives you total control over the contractors you hire, and the work you schedule.
- You’re looking to sell your property. If your house or your car needs major repairs, yet you intend to sell it, with a cash settlement you can forego repairs and use the cash to make up for any losses you might make in the sale.
- You feel you’re underinsured. If your policy won’t cover you for all repairs, with a cash settlement you can prioritise whichever repairs you feel are the most pressing. Of course, it’s better to avoid being underinsured in the first place. Read our full guide to underinsurance.
What Are The Downsides of Cash Settlements?
Insurers usually partner with specific contractors. When offering a cash settlement, insurers will only give you as much as they would have paid their chosen tradespeople. The problem is that tradespeople sometimes offer insurers preferential rates. As a result, the cash settlement may not quite cover you for all the repairs you need to make.
Of course, you can shop around for quotes. But this takes time. And if your property needs urgent repairs, you may not have the time, or the energy, to seek out the best price. With costs of goods and services also on the rise, you could find that your repairs end up costing more the longer you wait.
Also, when you pay for repairs yourself, you’ll have to pay VAT on any services you use. Insurers generally do not account for VAT costs in their cash settlements. Again, this means that the cash settlement may not fully cover you for all the repairs you need.
Pros and Cons of Insurers Paying for Repairs
Instead of a cash settlement, your insurer may offer to pay directly for the necessary repairs to your property, and for the replacement of any covered contents.
Some insurers will use their own tradespeople. Others will allow you to appoint your own. In the latter case, your insurer will compensate you for the cost of repairs – but only as much as it takes to return your property to its previous state.
The major benefit of letting insurers pay directly for repairs is that it tends to be quicker and easier. If you’ve got the right level of insurance cover, you can rest assured that all the necessary repairs will be completed as soon as possible. Plus, when tradespeople are appointed as part of the claim, you won’t have to manage all the repairs yourself.
The downside is that you may have less say in how the repairs are managed, including which work is prioritised. Plus, if you’re underinsured, repairs compensation may not be enough to cover all the repairs your property needs.
Do You Have Enough Cover For Your Property?
If you need to make a claim on your insurance property, whether it’s for your car, your home, or your business, then you should be able to depend on your insurer to take care of everything.
Yet as we’ve seen, you can run into some serious problems if you don’t have the right cover in place. If you’re underinsured, it won’t matter if you choose a cash settlement or repairs compensation. In any case, you’ll find that you don’t have the necessary means to cover all the required work, which could land you in some serious trouble.
We can help you ensure you have the right level of cover in place to protect what matters most to you. For a friendly chat with one of our insurance experts, call us on 0208 8290 9086 or email personal@anthonyjones.com.
