What is Insurance Claim?
Insurance Claim is a demand made by the policyholder to the insurance provider for compensating the losses incurred due to an event that is covered by the policy. The claim is either validated or denied by the insurance company based on their assessment of the event and the nature of the incurred losses. If approved, then the insurance provider issues the payment to the insured party or someone who is approved on behalf of the insured party.
Insurance claim depends on policyholder’s deductible, whether or not the deductible is applicable to the incurred losses and the quantum of the actual loss. The claims also depend on the type of claims being made, such as property or home insurance claims involve a cumbersome process that also includes an assessment by adjusters, while health insurance claims can be processed even without the patient’s involvement.
Let us take the case of David who was working on his car and by mistake, he left it in neutral. The car rolled out of the garage and ran into the traffic where it hit a man on a motorcycle and a pickup truck. David’s car was covered under third party insurance. So, he made an insurance claim for damage to his own car ($15,000), damage to the pickup truck ($6,000), damage to the motorcycle ($4,000) and physical injury to the motorcycle driver ($10,000). He made a total insurance claim of $35,000.
Let us take the example of Hotel ASD Holidays that caught fire due to some electrical faults. It resulted in damage to the five rooms that were renovated recently. Nevertheless, the hotel had fire accident insurance to cover any losses or damages caused to the property due to fire. The hotel made a property damage claim of $200,000.
Types of Insurance Claim
#1 – Health Insurance Claims
These cover various medical expenses, such as cost of surgical procedures, expenses pertaining to inpatient hospital stays etc. Such health policies indemnify patients against the financial burden of medical expenses. Majority of the health insurance claims are adjudicated electronically and requires minimum involvement of the patient.
#2 – Property & Casualty Claims
These type of insurances primarily cover a house, which is one of the largest and costliest assets for any individual. It also covers expenses pertaining to accidents. Typically, the claim for damage is filed via the internet to the representative/ agent of the insurer, who is also known as a claim adjuster. In property & casualty claims, the onus lies on the policyholder to clearly and explicitly report all the damages of the deeded property. After that, the claim adjuster does the assessment of the losses incurred by the policyholder.
#3 – Life Insurance Claims
These are related to the death of the insured policyholder. Typically, the claim form along with death certificate and original policy has to submit. The first responsibility of the insurer is to ensure that the cause of death of the insured doesn’t fall under the excluded category, such as suicide or death resulting from a criminal act.
Insurance Claim Settlement
The two major methods used in claim settlement are:
- Actual Cash Value Settlements: In case of actual cash value basis of claim settlement, the policyholder doesn’t receive the purchase or replacement value of the item that they have lost. Rather they get the depreciated cost of the item and hence the assessment of the loss depends a lot on the type of depreciation being used.
- Replacement Cost Settlements: In case of the replacement cost basis of claim settlement, the payments are more favourable for the policyholders as compared to actual cash value settlement. It helps the policyholder to get back to the situation that he/ she was in prior to the loss as it covers the cost of repair and replacement.
- Place and time of the insured event
- Contact details of everyone involved in the event
- A detailed description of how the event took place
- An estimate of the incurred loss or damage, if available
- Proof of loss statement
- List of items that were damaged or stolen and the cost of replacement
- In life insurance, the nominee of the policy is provided financial protection in case of pre-matured death of the insured.
- In non-life insurance, it provides indemnity against losses due to theft, fire or natural disaster.
- In general, it covers the risk of the policyholder in exchange for a premium.
- It helps in eliminating the reliance of the dependents on the insured.
This has been a guide to What is Insurance Claim & its definition. Here we discuss how it works along with examples, types, settlement, requirement and benefits. You can learn more about from the following articles –