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Self-repairs and cash-outs

It is not uncommon for a homeowner to want to cash settle their building damage claim, for any number of reasons, including wanting to do the repairs themselves or putting the cash toward a renovation upgrade that they had in mind.

When determining how you want to settle your claim, it is important to be familiar with the basis of loss settlement in your own policy. Generally speaking, a policy allows two options for settlement:

  • Repair the damages, and if repair is not possible or does not make economic sense, replace with like kind and quality. Typically, under this option, the insurance company will obtain at least one scope and estimate from a professional restoration specialist and have you authorize the repairs once you’ve reviewed and agreed with the scope.

    Of course, you, as the homeowner can also obtain a quote to do the same scope of work from your own contractor. Generally speaking, the lowest quote will form the basis for your repair allowance.
  • Cash settle. Typically, under this option, the insurance company will pay the repair or replacement cost (whichever is less), less depreciation. Depreciation takes into consideration the age, use and condition (aka wear and tear) of the item being repaired or replaced.

But what if the homeowner wants to repair and claim repair costs without depreciation, but does not want a restoration contractor doing the work? Can a homeowner do their own work, or act as their own General Contractor for the work? Generally speaking, the answer is yes. However, there are a few things a homeowner needs to be aware of when doing the work themselves or acting as their own General Contractor, such as:

  • Claiming the labour: Restoration and other professional contractors charge labour rates that take into consideration all the costs of doing business that a contracting firm has, including worker’s compensation premiums, other insurance, benefits and other overheads. A homeowner doing their own work bears none of these expenses and so are not eligible for the same professional contractor labour rate.
  • Claiming the material costs: In most cases your insurance company will require you to submit your material receipts along with all material and labour invoices for any sub-traded work. Typically, these are totaled and so long as the amount does not total more than that what they could have paid a restoration contractor, you will be reimbursed your costs.

    Where problems arise is when an insurer obtains a quote from a professional restoration specialist for agreed upon work, and the amount claimed by the homeowner for that same work exceeds the quote. The founding rule of insurance is that an insured cannot profit from a loss, so insurers will not pay homeowners more than they would have paid bona fide licensed and experienced restoration contractors.

    Hence, indemnity will be limited to actual and proven costs incurred with no allowances for profit and overhead.
  • Insurers will not warranty work done by an insured, nor will they become involved on any deficiency issues that may arise. So, for example, if you act as your own contractor and hire a sub-trade to do some of the work and they mess up, you are on your own to handle remediation and any increased costs associated with same.

For more information, or to get a quote on your home insurance, contact Square One at 1.855.331.6933.

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