What Is a Supplement Check From Insurance?
Unravel the mystery of insurance supplement checks. Understand why these additional payments occur and how to manage them effectively.
Insurance policies provide financial protection against unexpected losses. When a covered event occurs, policyholders file a claim for compensation. An initial payment may cover immediate damages, but if it doesn’t fully address the loss, an additional payment, known as a supplement check, may be issued.
What a Supplement Check Is
An insurance supplement check is an additional payment issued by an insurance company after an initial claim settlement. This payment covers extra costs, damages, or expenses not fully accounted for or discovered during the original assessment. Its purpose is to ensure the policyholder receives adequate funds to restore damaged property to its pre-loss condition.
This often occurs in property damage claims, such as vehicle repairs or home renovations. For instance, an initial estimate for vehicle damage might not capture all issues, leading to a supplement when hidden problems are found during repair. In home insurance claims, a supplement might be issued if additional structural damage is uncovered after repair work begins, or if material or labor costs increase unexpectedly. These checks help prevent policyholders from having out-of-pocket expenses for covered damages initially overlooked.
Reasons for a Supplement Check
Supplement checks are issued due to new information, a re-evaluation of damages, or a correction to an initial assessment. A common reason is hidden or latent damage not visible during the original inspection. For example, after a roof is torn off, underlying decking might be found damaged or not up to current building codes, necessitating additional repairs. In auto repairs, hidden frame damage might only become apparent once a vehicle is disassembled.
Additional repair costs can also arise from unforeseen issues during the repair process. This includes fluctuating material costs or specific components, like flashing or ice and water shields, required by local building codes but missed in the initial estimate. A re-assessment of the claim by the insurer, often based on new evidence from the policyholder or their contractor, can also trigger a supplement.
What to Do With a Supplement Check
Upon receiving a supplement check, verify its details against your claim and the insurer’s explanation. If the check does not explicitly state “full” or “final payment,” it is generally acceptable to deposit it. It is advisable to communicate in writing with the insurer that the payment is accepted as a partial amount, and that further funds may be expected if additional costs arise.
Maintain meticulous records of all insurance correspondence, estimates, invoices, and payments. For property claims involving a mortgage, the check for repairs might be made out jointly to the policyholder and the mortgage lender. In such cases, the policyholder will need to coordinate with the lender to release the funds for repairs. Insurance payouts for property damage are generally not considered taxable income, as they are reimbursements for losses. However, exceptions apply if the payout exceeds the property’s adjusted basis, or includes compensation for lost income or punitive damages, which may be taxable. Health insurance payouts are typically tax-free unless they exceed actual medical expenses or were previously deducted.