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What Is An Arbitration Clause In A Home Insurance Agreement

2010-04-22

A home insurance policy is designed to protect homeowners from having to pay costly repairs to their home or to replace stolen or damaged contents out-of-pocket. Insurance policies work in the following way: the policy owner pays a monthly or yearly premium to the insurance company, who in turn, pays for any damages caused by certain perils. The policy covers such things as fire, theft, riot, and even impact by aircraft or land vehicles. Once the homeowner pays an agreed upon deductible, the insurance company typically covers the remaining amount.

The home insurance costs on the home insurance claim by the insurance company can be calculated by replacement cost or actual cash value. Replacement cost pays the home owner for the actual home insurance cost of replacing the item with a similar item. Actual cash value works the same way; however, the insurance company takes into consideration the amount that the item has depreciated since being purchased. Most insurance companies determine the home insurance claim costs using the actual cash value method. This is beneficial to the insurance companies as they will not be required to pay out as much. Every item depreciates, whether it is a computer, big screen television, or leather couch.

In some cases, the insured and the insurer will not agree on the amount. The policy owner may believe that the item is worth much more than the adjuster has deemed it to be. They may request more money and the insurance company may refuse to review their findings. In cases such as this, both parties may need to go to arbitration to settle the dispute. When arbitration is considered, each party must choose an independent appraiser to evaluate the amount of the claim. These appraisers work together with a third party to come to a decision. This decision must be adhered to by both the insured and the insurer. At this point, it is legally binding.

Before entering into a home insurance policy, you should first ensure that you are aware of all of the coverage offered, which method the insurance company uses to determine their claims, and the clauses that are in the contract. If there is an arbitration clause, this will allow you to file a dispute if you do not agree with the amount offered by the adjuster. Arbitration clauses are considered to be a separate part of the insurance contract and no other part can void its legality. Always ask your insurance agent or broker if there is an arbitration clause in your policy. Otherwise, if you need to make a claim, you may not have any recourse to take additional action if you disagree.