What you need to know when filing an insurance claim for the first time

Tips to help you understand the claims process

Car and house problems are no fun, especially when they're caused by theft, vandalism, a natural disaster or a collision. Fortunately, if you have the appropriate insurance policies in place, they can help with repairs and reduce the financial impact.

But let's be honest: All you want is to get your home or car back to normal and put the incident behind you. Whether you found a water leak in your home or you were involved in a car accident, it’s easy to get confused while you’re trying to figure out how to deal with the problem.

Do you call a vendor like a plumber or a tow company right away? Do you hit Google searching for contractors? At what point do you contact your insurance company?

If you plan to use your insurance benefits, you'll need to go through the claims process.

While insurance companies try to make claims as quick and painless as possible, sometimes things can get complicated. Between finding a trusted contractor to complete the repairs and receiving the payout from your insurance company, you might feel stuck in the middle.

Your insurance company may have a preferred provider or contractor network to help expedite your claim. Some states use assignment of benefits, or AOB, clauses to allow contractors like roofers and mechanics to work with insurance companies and spare policyholders from playing the middleman.

What is a preferred repair facility or contractor network?

Sometimes, it can be confusing to know what you’re supposed to do first in the event of damage to your home or car. For example, let’s say a pipe starts leaking in your home, damaging your ceiling. After you deal with the immediate problem by turning off the main water into your home, what next? Do you call a plumber? How do you deal with any mold issues? What’s the process?

Contacting your insurance company before you call any service providers can be a good first step. Many insurance providers work with a network of trusted vendors, contractors and repair facilities, so they can help guide you through the repair process and make things go more smoothly.

But whether you elect to go with a preferred vendor or decide to use your own contractor, it's important to read and understand any estimates or agreements that are put in front of you.

Things like an assignment of benefits, or AOB, are often used to expedite claims, but there are important considerations that policyholders should know.

How does an assignment of benefits clause work?

If your insurance contract includes an AOB clause, you can allow a third party to "stand in your shoes" and seek payment from your insurance company.

An AOB is intended to make things quicker and easier on policyholders. Since insurance claims can get a little tricky, it can be challenging and time-consuming to navigate, especially if you've never previously filed a claim.

For a car claim, signing an AOB means you just drop off your ride to get repaired and pick it up when it's done. The vendor then sorts out the details of getting paid by your insurance. Pretty straightforward, right?

But there can still be problems using an AOB. This is why you should thoroughly read and understand any document put in front of you during a claim.

AOB challenges for insurance policyholders

While an AOB authorizes the third party to act, one problem with removing yourself from the claim process is that, well, now you're not part of the claim process. Not such a big deal if your repairs get done on time and to your satisfaction. But what if you have questions about your repairs? What if there's an unexpected delay?

When you sign an AOB for your insurance policy, the repair shop or contractor becomes the policy beneficiary for the claim, not you. As a result, you may lose transparency and control over your claim. Your insurance company may even be limited in what it can do to help.

This is why it's so important to know and understand what you are signing. It can impact your rights during a claim.

Let's say you had a leak in your home and begin work with a contractor to repair the damage and manage the claim on your behalf. Maybe the work stalled or you were presented with explanations of the scope of work. Something may seem fishy and you want to get to a resolution. Signing an AOB may limit what your insurance company can tell you or do to support you.

Unfortunately, AOBs have been associated with fraud and increased litigation in some states. And because of inflated claims costs and lawsuits, policyholders might ultimately see their premiums increase or have poor claims experiences.

What should you do when filing a claim?

First and foremost, contact your insurance company. They can provide next steps for your situation. Take pictures of your home or vehicle and document what happened as best as you are able. If you go direct to a vendor or contractor first, read and understand any documents that require your signature.

Second, know who you're doing business with. Find reputable vendors or seek direction from your insurance company if there is a preferred vendor to use. AOBs are legally binding, and they can give vendors power to exaggerate the scope of your claim, with or without your knowledge. So, it's important to work with a vendor you can trust.

Lastly, make sure you have a clear understanding of your policy and what you should expect during the claims process. These guides can help:

• Auto claims
• Homeowners and property insurance claims

Always keep an eye out for AOB clauses on any document from a third-party vendor so you can weigh the pros and cons. Don't unknowingly sign away your rights or policy benefits.

Most insurance companies want to make it easy to file your own claims. They want to keep you as a happy customer. Filing your claim on your own can help you keep control of the policy benefits you pay for. And if you do elect to use an AOB, just make sure you fully understand it before you sign.