Assignment of Benefits: How to avoid a disaster... after the disaster.

Before you hire anyone to do any kind of work on your home, understand what Assignment of Benefits is and how it impacts you.

What is Assignment of Benefits?

An Assignment of Benefits (AOB) occurs when a homeowner signs an agreement that transfers their rights, benefits, and financial interest in an insurance policy to another party. Once this agreement is in place, the insurance company not only must make payments directly to the contractor, but the homeowner also no longer has the right to work directly with their insurance company. 

What happens if I sign an Assignment of Benefits agreement?

While it may sound appealing to have a contractor or vendor communicate directly with your insurance company, AOB has more negative consequences: Not only does signing an AOB prohibit you from having a voice during the claims process, it transfers your policyholder benefits and all other rights under the policy to the contractor or service provider. You'll be left out of the claim process without legal rights in the event of a dispute. You even may not get the necessary repairs you need, and/or liens could be placed on your property for unpaid repair bills.

A lien is a right to keep possession of property belonging to another person until a debt owed by that person is discharged.

When you sign an AOB agreement, a contractor has the right to enforce their claim for payment against your property. If they are not fully compensated for the work contracted, they may place a lien on your property. If their subcontractors are also not paid for their work, they also have the right to lace a lien against your property. Make sure you know what work is being done and the cost of that work before any repairs begin.

Additionally, since AOB requires the insurance company to pay the contractor or repair service provider directly, if repair work ends up costing less than the estimated amount, any extra funds are retained by the contractor instead of you, the policyholder.

Make sure you're able to work directly with your insurance provider, manage all claim payments, and maintain all rights and benefits under your policy by not signing an AOB agreement.

How do I know if I'm signing an AOB?

The repair service provider may actually require you to sign the AOB agreement, which is a clear red flag. If they don't request it overtly, be sure to review the contract or repair agreement from a repair service provider and look for an AOB agreement in the "fine print."

Before entering into a contract:

• Call your Insurance Agent or our Claims Department (888.486.4663) and let them know a vendor has contacted you

• Read the contract or repair agreement thoroughly and beware of “Assignment of Benefits” language

• Request everything in writing, including the total cost, a detailed scope and timeline for the project, a payment schedule, etc.

• Get estimates from multiple vendors and do not feel pressured to make a decision right away

• Make sure the contract does not include any blanks that could be filled in without your knowledge

• Check that the vendor is licensed and insured and ask for references

Things to know if you sign an AOB:

• You have 3 days to void the contract

• You no longer have decision-making authority about your claim or how the damage is repaired

• All claim payments will be made directly to the vendor — not you

Warning signs:

• Contract contains the words “Assignment of Benefits”

• Offer of a free roof, inspection, or work

• Vendor offers to handle your claim completely, work directly with your insurance company, or take care of everything for you

• Door-to-door solicitation

• Vendors that show up following a major weather event (hail storm, tornado, hurricane) that may have impacted several homes in your area