The offer to settle a sinkhole claim

If you open a sinkhole claim with your insurance company, you may be invited to receive a settlement to be used to pay for the repairs yourself, as opposed to the situation remaining in the hands of your insurance company. In many cases, this settlement will not cover their engineer’s estimate for sinkhole repair or cosmetic repair, and you’ll be asked to surrender your insurance policy. Is it worth it?

Surrendering your policy

If you accept a cash settlement from your insurance company, it is standard to require a surrender of the policy. Because your insurance company is not executing the repairs themselves, they no longer wish to be financially responsible for the well-being of your home.

Therefore, after accepting a settlement, you will need to find new sinkhole insurance coverage for your home, so you should take some time to consider if this is the right choice for you. Once your home has a history of sinkholes, it is more difficult to get sinkhole coverage for an at-risk home

Your intent to repair

Whether or not you accept your insurance company depends mostly on your intent to repair. Your insurance company will offer you a deal, but it may not be quite as sweet as you’d hope. Their deal may also affect whether or not you decide to repair your sinkhole damage.

If you accept the settlement, it will not be for the full amount of the estimated repairs. You can likely depend on receiving 50%-75%  of this number.

However, if you do not accept the settlement, your insurance company will pay 100% of the cost, however, you do not get a say in how your sinkhole is repaired. Therefore, if you do not agree with the engineer’s report (not a completely unusual event), and fear that it won’t be an effective repair, you’ll need to suck it up and let them have their way.

Your mortgage

Whether or not you accept this settlement and you intend to repair your home also depends on your mortgage. If you still have a mortgage, your mortgage company will receive this check, not you. This means you’re flirting with the possibility of your mortgage company putting this check toward the dollar amount on your mortgage, as opposed to forwarding it to you so you can repair your home.

However, if you do not have a mortgage, this is a much sweeter deal – the check goes right to you! Theoretically, you can spend this settlement however you choose.

Paying off your mortgage

In the event that your insurance company offers you a large enough settlement to pay off your mortgage completely, you can take that route and don’t necessarily have to repair your home at all, unless your mortgage company forces you to, which is completely possible; while they are loaning any amount of money to pay off your home, it is within their best interest for you to repair any damage.

If the settlement will not pay off your mortgage, however, proceed with caution as accepting the money will put you in an even worse position: your mortgage company is forcing you to do the repairs, you have less money to do it with, AND your insurance company is off the hook in case the repairs fail. In this scenario, it is generally suggested that you do not accept a cash settlement.

The bottom line

At the end of the day, any cash settlement you accept from your insurance company must be considered along with the state of your mortgage. You could find yourself stuck with major sinkhole damage to your home, little to no money to repair it, and no insurance company.

Before accepting any settlement, make sure you are satisfied with their repair plan, as this defines what your insurance company will pay you and what you can afford. If you accept a settlement on a cheap repair plan, you may not be able to properly repwair your home, causing more issues in the future that you are on the hook for.

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