Assignment of Benefits

Here’s another example of assigning benefits: 

Let’s say a storm causes damage to your home due to the wind. After reporting a loss to your insurer, an adjuster will visit your home or business to provide an estimate of repair costs. When you’re ready to have some work done on your home, call a contractor and make arrangements. 

To avoid having to pay the contractor out of pocket and then wait to be reimbursed by the insurance company, contractors will sometimes have you sign a document authorizing the contractor to contact the insurance company directly for payment. Contractors can sue your insurance company on your behalf if they aren’t paid after you’ve signed an assignment of benefits.

Whether or not insurance benefits are transferable will be specified in the policy. Assuming the loss occurs before the assignment, the assignment is generally valid. However, it may be invalid to assign benefits before the damage has occurred. For instance, you could run into legal trouble if you foresee a storm damaging your home and offer your contractor friend the insurance payout in exchange for immediate repairs.

Before you distributed the benefits of your insurance policy in certain circumstances, the insurance company could have needed to grant its prior consent. In these situations, they have little control over the potential cost of the bill. It’s better to avoid making any commitments regarding your insurance proceeds until after the damage has really occurred.