Consumer watchdog Which? is urging homeowners to be cautious when accepting cash settlements from home insurance companies, warning that they could end up facing unexpected expenses.
When filing a home insurance claim, insurers typically offer options to repair the property, either by managing the repairs themselves or providing a cash settlement for homeowners to handle the work independently. However, Which? cautions that accepting a cash payout may lead to unforeseen costs, particularly if the extent of the damage isn’t fully understood until repairs are underway.
According to a survey of 2,804 people who had made home insurance claims in the past two years, 41% were offered direct repair or replacement, while 38% received cash settlements, and 19% were given a combination of both.
One homeowner, Sarah Richards from North Devon, shared her experience with Which?, explaining that the cash settlement offered for bathroom repairs was “woefully low,” forcing her to use personal savings to cover the shortfall. She claimed that during a loss adjuster’s visit, she was encouraged to sign documents confirming their attendance, unaware that by doing so, she was accepting a cash settlement and closing her claim.
In July, the Financial Conduct Authority (FCA) issued a warning in its claims handling review, stating that some insurance companies may offer cash settlements to reduce their own costs, without fully considering the best interests of their customers.
Which?’s latest alert follows its super-complaint to the FCA regarding how insurance companies handle claims and treat their customers. The watchdog is urging homeowners to carefully consider the options presented to them and be aware of the potential financial risks associated with cash settlements.
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