How Insurance Claim Contractor Scams Work – And How to Protect Yourself

Every year, thousands of Americans are victimized by insurance claim contractor scams. These scams work in different ways, although they have certain common traits.

Examples of insurance claim contractor scams include:

• Lowball bids to restore your property after a disaster, including ‘special hurricane discounts’ and ‘limited time offers’
• Low-quality repairs using substandard materials
• Fast repairs or replacements with little attention to detail
• Causing extra damage to your property to inflate a claim
• Disappearing with a down payment after only doing part of the job (or no work at all)
• Convincing you to legally sign over your claim to a contractor, then making an inflated claim behind your back

Insurance claim contractor scams take advantage of homeowners in vulnerable positions. Many of these contractors roam disaster-prone areas looking for victims. They might go door-to-door in a neighborhood recently hit by a flood, for example, and claim to offer discounted hurricane repair specials.

In most cases, good contractors do not need to go door to door to request business. Most contractors get enough business on their reputation alone.

How to Avoid Insurance Claim Contractor Scams

With basic precaution, you can avoid being victimized by an insurance claim contractor scam. Strategies to use to fight back include:

Get Multiple Quotes: Whether dealing with an insurance claim or general repairs, it’s a good idea to get multiple quotes for any job. Don’t just accept the first estimate you receive. Get a high, medium, and low estimate, then check if you’re getting a fair price.

Hire Local: After a disaster, contractors from across the state (or across the country) may travel to a region to address demand. Consider hiring local. Use an established, local contractor after a disaster – not an out-of-town contractor that goes door-to-door. Many out-of-town contractors are unlicensed and uninsured to do business in your state, yet they’re trying to take advantage of vulnerable homeowners after a disaster.

Check Licenses: Check the licenses and documentation of any contractor with which you do business.

Avoid Advance Payment: Most contractors require 20% or less payment upfront. If a contractor demands more than that, be wary – especially if the contractor requests cash.

By taking basic precautions, you can avoid being victimized by an insurance claim contractor scam.

Are You Under-insured or Over-insured? Determining the Right Insurance Limits

Homeowners insurance provides a crucial layer of protection. However, homeowners insurance becomes much less useful if you are over-insured or under-insured.

If you are over-insured, then your premiums are too high. You’re paying too much for homeowners insurance every month. You’re paying for coverage you don’t need. It’s unlikely you’ll ever make a claim that takes full advantage of all policy coverages and limits.

If you are under-insured, then you have too little insurance for your needs. You might have a $500,000 house and only $100,000 of insurance, for example. If you need to make a major claim, then your insurance could quickly be maxed out, leaving you paying hundreds of thousands of dollars out of pocket.

Are you under-insured or over-insured? Consider the following.

Consider Construction Costs in Your Area: Construction costs vary widely between regions. Consider contacting home builders in your area to ask about average square-foot construction costs. If the going rate in your area is $200 per square foot, and your home is 2,000 square feet, then you’d want $400,000 of homeowners insurance coverage. This gives you an idea of the replacement cost of your home, which is the amount of money you need to rebuild your home after a total loss. 

Consider Liability Coverage Limits: Homeowners insurance isn’t just about property damage; it’s also about liability damage. Homeowners insurance policies have liability limits. If someone injures themselves in your home, then you could be liable for their medical bills and lost wages. The average homeowners insurance claim for bodily injury damages is between $10,000 and $20,000. Make sure you have sufficient liability coverage to protect your assets.

Add or Remove Coverage: If you live on top of a mountain in the middle of the country, you probably don’t need flood insurance or hurricane insurance. Check your policy to ensure you’re paying for things you will actually use.

Revisit Insurance Needs Regularly: Your homeowners insurance policy needs change regularly. Homeowners insurance covers your possessions and property. The value of your property changes every time you make a renovation. It also changes over time due to depreciation and wear and tear. You might add new possessions that impact coverage. Revisit your homeowners insurance regularly to avoid being over-insured or under-insured.

By following the strategies above, you can avoid being over-insured or under-insured.