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Assignment of Benefits (AOB)

Have you heard the term Assignment of Benefits? Do you know how it impacts you? An AOB is an agreement that, once signed, transfers the insurance claims rights or benefits of your insurance policy to a third party.

An AOB gives the third party authority to file a claim, make repair decisions and collect insurance payments without your involvement.

Review the resources below to better understand how transferring your insurance claims rights can impact you and your family.

Assignment of Benefits video.
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Review this downloadable brochure for definitions, tips and information on Assignment of Benefits.
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Know the red flags and how to protect yourself before signing an Assignment of Benefits.
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Review these consumer tips on filing an insurance claim and transferring your insurance claims rights.
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Read testimonials of consumers impacted by the misuse of Assignment of Benefits.
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FAQs

What is an Assignment of Benefits?

An AOB is an agreement that, once signed, transfers the insurance claims rights or benefits of the policy to a third party. An AOB gives the third party authority to file a claim, make repair decisions and collect insurance payments without the involvement of the homeowner. AOBs have been used with life and health insurance policies for many years. However, it is now also being commonly used in homeowners insurance claims by restoration companies and contractors. Signing an AOB can be helpful with navigating the claims process, but if misused, it can lead to harmful consequences for the homeowner.

For example, you have a pipe leak in your home that causes water damage. If you call a restoration company to make repairs and sign an AOB that transfers your insurance rights to the company, the company can file a claim on your behalf and be paid directly.

Is an Assignment of Benefits contract legal? How can I get out of the contract?

Yes. An AOB is a legal contract. If you sign an AOB, it is legally-binding and there is no “right of rescission” or “cooling off period.” Once the contract is signed, it becomes a valid contract. The company or person you signed the contract with has the right to hold you to the terms of the contract. If you are concerned with the language or terms of the contract, you should seek legal advice prior to signing the AOB. If the third party will not agree to release you from the contract, the only recourse is in a court of law.

If I have suffered damage to my insured property, what should I do first?

If you have damage, you should take the necessary steps to mitigate the damages and prevent any additional damage from occurring. This would include any temporary repairs such as covering the roof or removing standing water. You should also immediately contact your insurance company to inform them of the damage and file a claim.

Do not allow a third party, such as a water remediation firm or contractor, to contact your insurance company for you. You should be the one to make the first contact with your insurance company. You do not need to sign an AOB in order to get your insurance claim processed or your residence repaired.

How does an Assignment of Benefits impact me, as a homeowner?

An AOB can be helpful with navigating the claims process, but if misused it can lead to harmful consequences. Below are a few things to keep in mind:

  • You are signing over the rights and benefits of your insurance policy to a third party.

  • The insurance company can only communicate directly with the third party. The insurance company will not communicate with you regarding the claim.

  • You will lose all rights to the insurance claim, including the right to mediate the claim or to make any decisions regarding the claim, including repairs.

  • There is no right of rescission or cancellation provision with an AOB and once signed, the AOB is a valid contract and you are bound by the provisions of the contract.

  • Depending on the language in the AOB, the third party may be able to endorse checks on your behalf.

  • Once you have signed an AOB, the third party may file suit against your insurance company, with or without your knowledge.

  • You may be subject to property liens, or other financial fees or penalties for failure to comply with the terms and conditions in the AOB.

Tips to remember before and after you have suffered damage:

  • Thoroughly review your insurance policy to ensure you understand the policy, including your coverage, deductibles and responsibilities after damage has occurred.

  • Immediately following a loss, mitigate your damages and make any temporary repairs to prevent further damage from occurring. Remember not to make permanent repairs prior to contacting your insurance company or completion of an inspection by the company adjuster. The company has a right to inspect the damage prior to repair.

  • Make sure you thoroughly review and understand any contracts you sign with repair companies, including an AOB. You do not need to sign an AOB in order to get your insurance claim processed or your residence repaired. If you are asked to sign an AOB, make sure you read it carefully and understand clearly what rights and benefits under your insurance policy you may be signing away. Remember, this is a legally binding contract with no right to cancel after it is executed.

  • Verify the license (if one is required) of any contractor or vendor that you hire to make repairs to your property. You should also verify the company or person’s general liability and workers’ compensation insurance coverage.

Below is a checklist that may be helpful when reporting a claim:

  • Contact your insurance company directly to report the damage and set up a time for the adjuster to inspect the damages. Do not allow a third party, such as a water remediation firm or contractor, to contact your insurance company for you. You should be the one to make the first contact with your insurance company - as soon as possible.

  • Take photos of the damage.

  • Make emergency or temporary repairs.

  • Make an inventory of any damaged items.

  • Save receipts for any repairs

  • Do not discard any damaged items without prior approval from the insurance company.

  • Make a list of any questions you would like to ask the insurance adjuster.

  • Request a copy of the fire or police report, if applicable.

Glossary

Assignment of Benefits (AOB) is an agreement that, once signed, transfers the insurance claims rights or benefits of the policy to a third party. An AOB gives the third party authority to file a claim, make repair decisions and collect insurance payments without the involvement of the homeowner. AOBs are commonly used in homeowners insurance claims by water remediation companies and contractors.

Contract for Repair is a legal agreement for repairs that outlines the scope and cost of repairs to be completed. A Contract for Repair may state a certain amount is due up front before repairs can be started. If an initial payment is required, it will be listed on the contract and state the remaining balance is to be paid upon completion of the work. Most insurance companies will honor a contract for repair and make the check for outstanding amounts payable to the policyholder and the contractor.

Direct Payment Authorization Clause provides authorization for the direct payment of any benefits or proceeds to the company that is performing the work. This clause is found in an AOB and a Contract for Repair. Depending on the language in the AOB or the Contract for Repair, the third party may be able to endorse checks received from the insurance company on behalf of the policyholder for services provided by them. Also, the policyholder is responsible for payment of their deductible and any additional work requested by the policyholder not covered by the insurance policy.

Power of Attorney is a legal document by which one person authorizes another person to take specific actions on behalf of that person, as stated in the document.

Hold Harmless Agreement is an agreement that releases and holds a company harmless against all liability claims in the event the work is halted prior to completion.

Third Party or assignee is not an insured under the insurance contract, but stands in the shoes of the policyholder through an AOB and has the authority to file a claim with the insurance company, make repair decisions and collect insurance payments without the involvement of the homeowner.

Educational Materials

AOB VideoVideo

View this scenario-based video to understand how signing an Assignment of Benefits may impact you as a policyholder.
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AOB BrochureBrochure

This downloadable brochure includes definitions, tips and information on Assignment of Benefits.
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InfographicsInfographics

View these infographics for quick tips and information on Assignment of Benefits.
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Red Flag ChecklistRed Flag Checklist

Know the red flags and how to protect yourself before signing an Assignment of Benefits.
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Consumer TipsConsumer Tips

Review these consumer tips on filing an insurance claim and transferring your insurance claims rights.
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