Why Did Insurance Send Me a Check?
Received an unexpected insurance check? Understand its purpose, verify its authenticity, and learn the crucial steps to take next.
Receiving an unexpected check from an insurance company can be surprising, leading to questions about its origin and handling. This article clarifies why an insurer might send you a check and provides guidance on steps to take after receiving one.
Typical Reasons for Insurance Payouts
Insurance companies frequently issue checks, with claim settlements being the most common. When you experience a covered loss, such as damage to your home or a car accident, your insurer typically issues payment for approved repair or replacement costs. Payments may go directly to you, a repair shop, or a medical provider, depending on the claim.
Another frequent reason for receiving a check is a premium refund. This can happen if you cancel your policy before its expiration date, returning the unused portion of your prepaid premium. Overpayments due to clerical errors or policy adjustments reducing coverage or risk can also trigger a premium refund.
Mutual insurance companies may also pay policy dividends to their policyholders. These payments are not guaranteed but reflect the company’s financial performance. Policyholders often have options for how to receive these dividends, including cash, reducing future premiums, or purchasing additional coverage.
Subrogation proceeds are another source of funds. Subrogation occurs when your insurance company recovers money from a third party responsible for your loss after paying your claim. If the subrogation effort is successful, a portion of your deductible may be returned to you.
Life insurance policies can result in checks being sent to beneficiaries for death benefits. These payments are typically made as a lump sum to the designated beneficiary upon the insured’s death. Permanent life insurance policyholders may also receive checks for cash value withdrawals or loans.
Verifying and Understanding Your Insurance Check
Upon receiving an insurance check, carefully examine it. Look for the insurer’s name, your name as the payee, the amount, and the check number. The memo line may indicate the check’s purpose.
Review any accompanying documents, such as a letter, Explanation of Benefits (EOB), or a settlement statement. These documents explain what the payment covers, how the amount was calculated, and if any deductibles, depreciation, or co-pays were applied. For property claims, you might receive multiple checks for different damage aspects, such as structure or personal belongings.
To confirm the check’s legitimacy, contact your insurance company directly. Use official contact information from your policy documents or the insurer’s website, not numbers on the check or letter, especially if you have suspicions. If for a claim, cross-reference it with recent claims or known events.
Understanding the exact amount involves comparing it with your expectations and policy terms. The amount might be lower than anticipated due to a deductible, which is the portion of the loss you are responsible for before your insurance coverage begins. For property damage, payments might initially be based on the actual cash value (depreciated value) of items, with the remaining replacement cost paid out later once repairs or replacements are completed and proven. If the check seems incorrect or its purpose remains unclear after reviewing documentation, contact your insurer for clarification.
Actions to Take After Receiving a Check
After verifying the check’s purpose, deposit it. You can generally deposit an insurance check through mobile deposit, at an ATM, or with a bank teller. Be aware that your bank might place a hold on funds for a few business days, especially for larger checks.
Maintaining thorough records is important for any financial transaction. Keep copies of the check, all accompanying documentation like EOBs or settlement letters, and related communications. These records can be valuable for future reference, in case of discrepancies, or for tax purposes.
Consider potential tax implications, though specific tax advice should come from a qualified tax professional. Generally, insurance payments that reimburse you for a loss, such as property damage or medical expenses, are not considered taxable income because they aim to restore you to your previous financial position rather than increase your wealth. However, if a payment exceeds your actual loss or includes compensation for lost income or punitive damages, those portions might be taxable. Life insurance death benefits are typically tax-free for beneficiaries, but any interest earned on those proceeds can be.
If the check is entirely unexpected, the amount appears incorrect, or you believe it was sent in error, contact your insurance company immediately using their official contact information. Do not cash or deposit a check that you suspect is incorrect or that has language indicating it is a “full” or “final” settlement if you believe you are entitled to more, as cashing it might be interpreted as acceptance of the amount as a complete resolution of your claim. If a check is made out to multiple parties, such as yourself and a lienholder or contractor, all named payees usually need to endorse it before deposit.