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Assignment is a transfer of legal rights under or interest in an insurance policy to another party.
Additional Information
In most instances, the assignment of such rights can only be effected with the written consent of the insurer.
What is assignment of benefits, and how does it impact insurers?
What is assignment of benefits, and how does it impact insurers | insurance business america.
Assignment of benefits, widely referred to as AOB, is a contractual agreement signed by a policyholder, which enables a third party to file an insurance claim, make repair decisions, and directly bill an insurer on the policyholder’s behalf.
The Insurance Information Institute (III) describes AOB as “an efficient and customer-friendly way to settle claims.” Having a problem like a water leak in your home is stressful enough without having to negotiate an insurance claim. By signing an AOB, policyholders can leave that claim to the contractor they’ve brought in to fix the issue - in this case, potentially a plumber or a water remediation firm – and assuming that contractor acts in good faith, the repairs and the claim should be sorted without the policyholder losing too much sleep.
AOB – a fraudster’s playground In recent years, AOB has hit the headlines for all the wrong reasons. Loopholes in the way AOB is being used are enabling contractors and restoration companies to abuse the practice by inflating claims costs and charging insurance companies for work that was either unnecessary or simply wasn’t done at all. These fraudsters then keep any extra money for themselves.
Florida-based insurance brokerage, AssuredPartners, shared the following about AOB: “Once you sign an AOB, you lose control of the direction of your claim. The contractor takes control and can submit whatever they like to your insurance company, sometimes billing the company double, even triple the going market rate for their services, and sometimes including work that was never performed.
Read more: New to the insurance industry? Learn these basic terms.
“You don’t see this, and you can’t verify what was done but you have now committed to this contractor. You now have little to no recourse, nor are you able to comparison shop if you’re not satisfied with their work. Even if their work is incomplete, or you are unsatisfied with the end result, they can still claim compensation from the insurance company, which gets deducted from your benefits.”
A number of things could go wrong with AOB. When a vendor assumes control of a claim, that company is still bound by the terms and conditions of the original insurance policy. If a contractor violates any of those terms, the claim could be deemed void, leaving the policyholder out of pocket for a potentially significant loss.
Also, if the contractor files a claim and the insurance company does not agree with the dollar amount requested, under the AOB the contractor can engage in legal action against the insurer without the policyholder’s consent. According to the III, this can lead to: “a state of affairs in which legal fees can dwarf actual damages paid to the policyholder – sometimes tens of thousands of dollars for a single low-damage claim.”
Protecting policyholders from AOB fraud The National Insurance Crime Bureau, whose mission it is to combat insurance fraud, has published a checklist for policyholders – also something that brokers can share with any clients considering AOB – to consider before hiring a contractor:
- Get multiple estimates for any work / repairs that need doing
- Ask for references and check reviews
- Never let a contractor pressure you into hiring them
- Get everything in writing, including the cost of the work, payment schedules, exactly what work will be done, time schedules for that work, guarantees, and so on
- Read the contract in full. If there are any blanks or concerns, do not sign the contract
- Do not pay a contractor in full or sign a completion certificate until the required work is done
- Check all documents that are sent to your insurance carrier, and make sure you understand them
- Work with an insurance broker to ensure you understand insurance policy language and to get help with the claims process
Impact of AOB on the insurance industry Insurers who choose to dispute inflated AOB bills are up against it in the era of plaintiff-friendly court verdicts. If the insurance companies fight in court and lose, they must pay compensation to the plaintiff’s attorneys, but the opposite is not true if the insurers win their case. So, the cost of the legal expense is prohibitive for the insurance company either way, which is why many insurers opt to settle.
Inflated claims and massive volumes of lawsuits have the predictable result of driving up insurance companies’ legal costs – and insurers are forced to pass those costs on to consumers in the form of higher insurance premiums and more restrictive policy terms and conditions.
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AOB Resources
Assignment of benefits, what are the concerns or risks regarding aobs.
AOBs have long been a part of Florida’s insurance marketplace. However, abuses in the way they were being used in the marketplace have driven up costs for homeowners across the state due to unnecessary litigation associated with certain AOB claims.
Consumers should be aware, when signing an AOB, that they may become involved in the third-party vendor’s lawsuit against the insurance company if the third party and company are in dispute on the payment amount of the claim.
What precautionary measures can consumers take prior to signing an AOB?
OIR offers the following tips consumers should consider prior to entering into an AOB contract.
- Read your insurance policy carefully.
- Know what your responsibilities are after a loss.
- Know whether your insurance policy restricts your ability to assign your benefits and the terms of any restrictions.
- Know whether your insurer partners with any repair companies.
- Contact your insurance company prior to signing the AOB.
- Read the AOB carefully, ask questions, and do not feel pressured to sign it.
- Do not sign if there are blank spaces contained in the document.
Is a consumer required to sign an AOB to have repairs completed?
No. Consumers can file a claim directly with their insurance company. Filing a claim directly with the insurer allows the consumer to maintain control of the rights and benefits provided by their policy in resolving the claim.
How does a consumer know if they are signing an AOB?
After a loss, a consumer might call a roofer, contractor, plumber, water extraction company, or other third-party vendor to assist with emergency repairs. Once those vendors have assessed the damage, contractors or vendors may present consumers with a document to sign prior to beginning any work.
If the document is an AOB, it will sign over the consumer’s insurance benefits to the contractor or vendor and give this third-party the ability to negotiate and endorse claim payments or file suit against the insurance company on the consumer’s behalf.
An AOB must contain the following paragraph:
YOU ARE AGREEING TO GIVE UP CERTAIN RIGHTS YOU HAVE UNDER YOUR INSURANCE POLICY TO A THIRD PARTY, WHICH MAY RESULT IN LITIGATION AGAINST YOUR INSURER. PLEASE READ AND UNDERSTAND THIS DOCUMENT BEFORE SIGNING IT. YOU HAVE THE RIGHT TO CANCEL THIS AGREEMENT WITHOUT PENALTY WITHIN 14 DAYS AFTER THE DATE THIS AGREEMENT IS EXECUTED, AT LEAST 30 DAYS AFTER THE DATE WORK ON THE PROPERTY IS SCHEDULED TO COMMENCE IF THE ASSIGNEE HAS NOT SUBSTANTIALLY PERFORMED, OR AT LEAST 30 DAYS AFTER THE EXECUTION OF THE AGREEMENT IF THE AGREEMENT DOES NOT CONTAIN A COMMENCEMENT DATE AND THE ASSIGNEE HAS NOT BEGUN SUBSTANTIAL WORK ON THE PROPERTY. HOWEVER, YOU ARE OBLIGATED FOR PAYMENT OF ANY CONTRACTED WORK PERFORMED BEFORE THE AGREEMENT IS RESCINDED. THIS AGREEMENT DOES NOT CHANGE YOUR OBLIGATION TO PERFORM THE DUTIES REQUIRED UNDER YOUR PROPERTY INSURANCE POLICY.
Can the AOB agreement be canceled?
Yes. Following AOB reform in 2019, a consumer can cancel an AOB without any penalties or fees. To cancel, the consumer must give the third-party vendor signed written notice of the desire to cancel the AOB at one of three points during the repair process:
(1) Within 14 days after executing the AOB;
(2) At least 30 days after the date the third-party vendor is scheduled to start work, if that vendor has not already completed a substantial amount of the work; or
(3) At least 30 days after executing the AOB, if the AOB does not have a start date for the work and the third-party vendor has not begun substantial work on the property.
What significant changes came from the 2019 AOB reform?
According to the Department of Financial Services, there were 405 AOB lawsuits across all 67 Florida counties in 2006, and that number had risen to 28,200 by 2016.
To stem the AOB misuse, OIR worked with the Governor, Cabinet, and Florida Legislature to pass significant consumer protection reform related to AOBs. On May 23, 2019, Governor DeSantis signed into law House Bill 7065 (2019) (“HB 7065”), a significant reform to the AOB landscape, effective July 1, 2019.
HB 7065 created section 627.7152 , Florida Statutes, which contains definitions and required provisions for AOBs, referred to as “assignment agreements” in the statute, that are executed under residential or commercial property insurance policies. An AOB that does not comply with this new section is not valid under Florida law.
HB 7065 also created section 627.7153 , Florida Statutes, which provides standards for policies that restrict the right to assign post-loss insurance benefits in whole or in part under a property insurance policy. Insurers offering restricted policies must notify an insured at least annually of the coverage options available for the assignability of benefits and must attach that notice to the premium notice. A restricted policy must be available at a lower cost than a policy that provides the same benefits but does not restrict assignment rights.
Assignment of Benefits Data Calls
In June 2019, OIR issued Informational Memorandum OIR-19-02M to notify insurers that a data call would be issued sooner than required in order to evaluate the preliminary impact of HB 7065. OIR has proactively issued a data call in 2020 to evaluate the preliminary impacts of the legislation.
Previous AOB data call reports are listed below:
- 2017 Report released on January 12, 2018 – Press Release , Report
- 2016 Report released on February 8, 2016 - Press Release , Report
Assignment of Insurance definition
Examples of assignment of insurance in a sentence.
Topic #595 Assignment of Insurance BenefitsAssignment of insurance benefits is the process by which a specified party (for example, provider or policyholder) becomes entitled to receive payment for claims in accordance with the insurance company policies.
Topic #595 Assignment of Insurance BenefitsAssignment of insurance benefits is the process by which a specified party (e.g., provider or policyholder) becomes entitled to receive payment for claims in accordance with the insurance company policies.
Assignment of Insurance BenefitsI hereby assign all applicable health insurance benefits to which I and/or my dependents are entitled to Provider.
Assignment of Insurance Benefits and Release of InformationI authorize the release of any medical or other information necessary to process my claims.
The Court finds that the Assignment of Insurance by InEx to the Non-Louisiana Subclass is valid, binding, and enforceable.
More Definitions of Assignment of Insurance
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What is Assignment and Nomination in Life Insurance?
‘Assignment’ and ‘Nomination’ are two most common terms used in a life insurance policy document. Let us understand the importance of these two terms in-detail.
By Future Generali Updated On Oct 06, 2022
Your life insurance policy is a contract between you (insured) and the insurance company (insurer). The contract is filled with jargon. To the extent possible, we must understand all the terms mentioned in the policy bond (certificate). ‘Assignment’ and ‘Nomination’ are two most common terms used in the insurance world.
For instance, in the event that you plan to apply for a home loan, your home loan provider will surely use these terms. Hence, it is best to be sure and understand exactly what the terms mean before you make a decision to buy the policy.
What is assignment in life insurance?
A life insurance policy can be assigned when rights of one person are transferred to another. The rights to your insurance policy can be transferred to someone else for various reasons. The process is known as assignment.
An “assignor” (policyholder) is the person who assigns the insurance policy. An “assignee” is the person to whom the policy rights have been transferred, i.e. the person to whom the policy has been assigned.
In the event rights are transferred from an Assignor to an Assignee, the rights of the policyholder are canceled, and the Assignee becomes the owner of the insurance policy.
People often assign their life insurance policies to banks. A bank becomes the policy owner in this case, while the original policyholder continues to be the life assured whose death may be claimed by either the bank or the policy owner.
Types of Assignment
There are two ways to assign an insurance policy. They are as follows:
1. Absolute Assignment
During this process, the rights of the assignor (policyholder) will be completely transferred to the assignee (person to whom the policy rights have been transferred). It is not subject to any conditions.
As an example, Mr. Rajiv Tripathi owns a Rs 1 Crore life insurance policy. Mr. Tripathi wants to gift his wife this policy. Specifically, he wants to make “absolute assignment” of the policy in his wife's name, so that the death benefit (or maturity proceeds) can be paid directly to her. After the absolute assignment has been made, Mrs. Tripathi will own this policy, and she will be able to transfer it to someone else again.
2. Conditional Assignment
As part of this type of assignment, certain conditions must be met before the transfer of rights occurs from the Assignor to the Assignee. The Policy will only be transferred to the Assignee if all conditions are met.
For instance, a term insurance policy of Rs 50 Lakh is owned by Mr. Dinesh Pujari. Mr. Pujari is applying for a home loan of Rs 50 Lakh. For the loan, the banker asked him to assign the term policy in their name. To acquire a home loan, Mr. Pujari can assign the insurance policy to the home loan company. In the event of Mr. Pujari’s death (during the loan tenure), the bank can collect the death benefit and get their money back from the insurance company.
Mr. Pujari can get back his term insurance policy if he repays the entire amount of his home loan. As soon as the loan is repaid, the policy will be transferred to Mr. Pujari.
In the event that the insurer receives a death benefit that exceeds the outstanding loan balance, the bank will be paid from the difference between the death benefit and the loan and the balance will be paid directly to the nominee. In the above example, the remaining amount (if any) will be paid to Mr. Pujari’s beneficiaries (legal heirs/nominee).
Key Points to know Note About Assignment
In regards to the assignment, the following points should be noted:
- A policy assignment transfers/changes only the ownership, not the risk associated with it. The person assured thus becomes the insured.
- The assignment may lead to cancellation of the nomination in the policy only when it is done in favour of the insurance company due to a policy loan.
- Assignment for all insurance plans except for the pension plan and the Married Women's Property Act (MWP), can be done.
- A policy contract endorsement is required to effect the assignment.
What is nomination in life insurance?
Upon the death of the life assured, the nominee/ beneficiary (generally a close relative) receives the benefits. Policyholders appoint nominees to receive benefits. Under the Insurance Act, 1938, Section 39 governs the nomination process.
Types of Nominees
In a life insurance policy, the policyholder names someone who will receive the benefits in the event of the life assured's death. Here are a few types of nominees:
1. Beneficial Nominees
In accordance with the law, the beneficiary of the claimed benefits will be any immediate family member nominated by the policyholder (like a spouse, children, or parents). Beneficiary nominees are limited to immediate family members of the beneficiary.
2. Minor Nominees
It is common for individuals to name their children as beneficiaries of their life insurance policies. Minor nominees (under the age of 18) are not allowed to handle claim amounts. Hence, the policyholder needs to designate a custodian or appointee. Payments are made to the appointee until the minor reaches the age of 18.
3. Non-family Nominees
Nominees can include distant relatives or even friends as beneficiaries of a life insurance policy.
4. Changing Nominees
It is okay for policyholders to change their nominees as often as they wish, but the latest nominee should take priority over all previous ones.
Key Points to Note About Nomination
In regards to the nomination, the following points should be noted:
- In order to nominate, the policyholder and life assured must be the same.
- In the case of a different policyholder and life assured, the claim benefits will be paid to the policyholder.
- Nominations cannot be changed or modified.
- The policy can have more than one nominee.
- As part of successive nominations, if the life assured appoints person “A” as the first person to receive benefits. Now, in the event of the life assured’s death after person “A” dies, the claim benefits will be given to person “B”. The benefits will be available to Nominee “C” if Nominee “A” and Nominee “B” have passed away.
What is the difference between nomination and assignment?
Let's talk about the differences between assignment and nomination.
Nomination and Assignment serve different purposes. The nomination protects the interests of the insured as well as an insurer in offering claim benefits under the life insurance policy. On the other hand, assignment protects the interests of an assignee in availing the monetary benefits under the policy. The policyholder should be aware of both of them before buying life insurance.
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Assignment of insurance policies and claims | Practical Law
Assignment of insurance policies and claims
Practical law uk practice note w-031-6021 (approx. 19 pages).
Ctrl + Alt + T to open/close
- 1 Scope of this note
- 2 Assignment in insurance
- Legal assignment
- Equitable assignment
- 4 Forms of assignment in insurance
- 5 Assignment of subject-matter of insurance
- Difference between assignment and novation
- Conditions for assignment
- Effect of assignment
- Is an assignee bound by the dispute resolution provisions in an insurance policy?
- What happens if the insured assignor breaches a policy term?
- Amount of recovery of the assignee
- Competing assignments
- 8 Can assignees enforce the implied term that insurance sums must be paid within reasonable time?
- 9 Assignment provisions in insurance contracts
- Co-insurance
- Noting of interest
- Practical Law
Assignment of insurance policies and claims
Practical law uk practice note w-031-6021 (approx. 19 pages).
- Construction and engineering
- Construction insurance
- Credit, terrorism and political risks
- Cyber insurance
- Directors and officers
- Disputes, investigations and enforcement
- Insurance in commercial transactions
- Insurance intermediaries
- Legal expenses
- Making and dealing with claims
- Reinsurance
- Security, risk management and business continuity
Ctrl + Alt + T to open/close
- 1 Scope of this note
- 2 Assignment in insurance
- Legal assignment
- Equitable assignment
- 4 Forms of assignment in insurance
- 5 Assignment of subject-matter of insurance
- Difference between assignment and novation
- Conditions for assignment
- Effect of assignment
- Is an assignee bound by the dispute resolution provisions in an insurance policy?
- What happens if the insured assignor breaches a policy term?
- Amount of recovery of the assignee
- Competing assignments
- 8 Can assignees enforce the implied term that insurance sums must be paid within reasonable time?
- 9 Assignment provisions in insurance contracts
- Co-insurance
- Noting of interest
How to assign a life insurance policy
What is meant by assigning?
Interest in a life insurance policy can be transferred from the policyholder to a lender or relative by assignment of policy. Here the policyholder is known as the assignor and the person in whose favour the policy has been assigned is called assignee.
Types of assignment
There are two types of assignment: Conditional assignment: This is done when the insured wishes to pass benefits of the policy to a relative in case of early death or certain conditions. The rights of the policyholder are restored once the conditions are fulfilled. Absolute assignment: This is done as a part of consideration for a loan in favour of the lender/bank/lending institution. In such an assignment, the insured loses his rights in the policy and the absolute assignee can deal with it independently.
Notice of assignment
The insured needs to either endorse the policy document or make a deed of assignment and register the same with the insurer. A form prescribed by the insurers must be filled and signed. In case of conditional assignment, your reason needs to be mentioned as well.
Documents required
Proof of income. Self attested copy of photo ID and address proof. Self attested copy of PAN card.
Fees and stamp duty
If the assignment is made by endorsement on the policy document, it is exempt from stamp duty. However, in case of a separate deed, stamp duty is payable.
Acceptance and the right to reject
If the insurance company decides to register the assignment, it will record it and inform the assignor. On paying a fee, the assignee can obtain an acknowledgement. The insurer also has a right to reject if it believes that the assignment is not bona fide or against the interest of the policyholder or public interest or for the purpose of trading the insurance policy. (Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
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Assignment in Insurance Policy | Meaning | Explanation | Types
What is assignment in an insurance policy.
Assignment means a complete transfer of the ownership of the policy to some other person. Usually assignment is done for the purpose of raising a loan from a bank or a financial institution .
Assignment in Insurance Policy – Meaning, Explanation, Types
Assignment is governed by Section 38 of the Insurance Act 1938 in India. Assignment can also be done in favour of a close relative when the policyholder wishes to give a gift to that relative. Such an assignment is done for “natural love and affection”. An example, a policyholder may assign his policy to his sister who is handicapped.
Who can make an assignment?
A policyholder who has policy on his own life can assign the policy to another person. However, a person to whom a policy has been assigned can reassign the policy to the policyholder or assign it to any other person. A nominee cannot make an assignment of the policy. Similarly, an assignee cannot make a nomination on the policy which is assigned to him.
What happens to the ownership of the policy upon Assignment?
When a policyholder assign a policy, he loses all control on the policy. It is no longer his property. It is now the assignee’s property whether the policyholder is alive or dead, the assignee alone will get the policy money from the insurance company.
If the assignee dies, then his (assignee’s) legal heirs will be entitled to the policy money.
Can assignment be changed or cancelled?
An assignment cannot be changed or cancelled. The assignee can of course, reassign the policy to the policyholder who assigned it to him. He can also assign the policy to any other person because it is now his property. We can think of a bank reassigning the policy to the policyholder when their loan is repaid.
What happens if the assignment dies?
If the assignee dies, the assignment does not get cancelled. The legal heirs of the assignee become entitled to the policy money. Assignment is a legal transfer of all the interests the policyholder has in the policy to the assignee.
What is the procedure to make an assignment?
Assignment can be made only after issue of the policy bond. The policyholder can either write out the wording on the policy bond (endorsement) or write it on a separate paper and get it stamped. (Stamp value is the same, as the stamp required for the policy — Twenty paise per one thousand sum assured). When assignment is made by an endorsement on the policy bond, there is no need for stamp because the policy is already stamped.
Is it necessary to Inform the insurer about assignment?
Yes, it is necessary to give information about assignment to the insurance company. The insurer will register the assignment in its records and from then on recognize the assignee as the owner of the policy. If someone has made more than one assignment, then the date of the notice will decide which assignment has priority. In the case of reassignment also, notice is necessary.
Can a policy be assigned to a minor person?
Assignment can be made in favour of a minor person. But it would be advisable to appoint a guardian to receive the policy money if it becomes due during the minority of the assignee.
Who pays premium when a policy is assigned?
When a policy is assigned normally, the assignee should pay the premium, because the policy is now his property. In practice, however, premium is paid by the assignor (policyholder) himself. When a bank gives a loan and takes the assignment of a policy a security, it will ask the assignor himself to pay the premium and keep it in force. In the case of an assignment as a gift, the assignor would like to pay the premium because he has gifted the policy.
Types of assignment
Assignment may take two forms:
- Conditional Assignment.
- Absolute Assignment.
1. Conditional Assignment
It would be useful where the policyholder desires the benefit of the policy to go to a near relative in the event of his earlier death. It is usually effected for consideration of natural love and affection. It generally provides for the right to revert the policyholder in the event of the assignee predeceasing the policyholder or the policyholder surviving to the date of maturity.
2. Absolute Assignment
This assignment is generally made for valuable consideration. It has the effect of passing the title in the policy absolutely to the assignee and the policyholder in no way retains any interest in the policy. The absolute assignee can deal with the policy in any manner he likes and may assign or transfer his interest to another person.
Related Posts
To enact a life insurance policy assignment, the policy owner must notify the insurer of their intentions and request an assignment form so they can provide the insurer (insurance company who issued the policy) all the proper information related to their request. Once completed, the insurer will record the assignment formally, and then it is complete.
Why would a policy owner make a life insurance policy assignment?
Well, there are two situations in which a policy owner would want to assign their policy. A life insurance policy owner can use an assignment to either assign ownership of the policy or a portion of the policy proceeds to someone else.
What types of assignments are available to the owner of a life insurance policy?
There are generally two types of policy assignments available to the policy owner as follows:
1 – Absolute assignment – An absolute assignment is the permanent transfer of ownership of a life insurance policy. It is permanent and, once made, cannot be revoked. For example, a parent purchases a life insurance policy on a child. Once the child reaches 18, the parent can transfer ownership of the policy to their child. Once they do so, the child now has all ownership rights and is also responsible for paying the premium for the policy.
Learn more about an absolute assignment .
2 – Collateral assignment – A collateral life insurance policy assignment is temporary . If a policy owner needs to obtain a loan, they can use their life insurance as collateral for the loan. If the owner of the policy obtains a $20,000 loan, they can list the lender on a collateral assignment with their insurer, and if the owner dies while the loan is outstanding, whatever is owed on the loan is paid to the lender, and any death benefit remaining is paid to the beneficiary of the policy.
What happens if a loan is paid off under a collateral policy assignment?
Once a loan is paid off, the owner of the policy can terminate a collateral assignment. Remember, collateral assignments are temporary . You can think of it this way; the life insurance policy proceeds are being used as collateral for the loan. Once the loan is satisfied, the lender no longer needs any further collateral.
What else can help me prepare to pass my insurance licensing exam on my first attempt?
If you need any help preparing to pass an insurance licensing exam, we have some excellent courses which are primarily video-based. Check out our available courses now:
Insurance Licensing Exam Prep Video Training Courses
Other tips to help you pass your insurance licensing exam on your first attempt:
Insurance Exam Test Taking Tips
Also, check out our definition and question of the day videos on our YouTube channel:
PassMasters Insurance Exam Prep YouTube Channel
Consumer Services
Assignment of benefits (aob).
Have you heard of 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.
Legislative Updates
Recent legislative changes prohibit a policyholder from assigning any post-loss benefits of a residential or commercial property insurance contract issued or renewed on or after January 1, 2023. Therefore, Assignment of Benefit agreements may not be established for claims made under contracts subject to this new law.
These legislative changes are part of Senate Bill 2-A which was passed on December 14, 2022, during the Legislative Special Session and signed by Governor DeSantis on December 16, 2022.
- EDUCATIONAL MATERIALS
What is an assignment of benefits?
An AOB is an agreement that 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, AOBs are now 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.
What information must be included in an assignment of benefits?
The AOB must contain a written, itemized, per-unit cost estimate of the services to be performed by the third-party assignee and it must only relate to the work to be performed for services to protect, repair, restore, or replace a dwelling or structure or to mitigate against further damage to such property.
The AOB must contain a notification in 18-point, uppercase, boldfaced font that advises you that you are giving up certain rights under your insurance policy to a third party. The notification must also include the rescission terms.
The AOB must contain a provision that requires the third-party assignee to indemnify and hold you harmless from all liabilities, damages, losses, and costs (including attorney fees) if the policy prohibits an AOB. The execution of the AOB constitutes a waiver by the third-party assignee and its subcontractors of claims against you for payment arising from the AOB. The third-party assignee and its subcontractors may not collect, or attempt to collect money from you, maintain any action of law against you, file a lien against your property or report you to a credit reporting agency.
The AOB prohibits the third-party assignee from seeking payment from you in any amount in excess of the applicable policy deductible unless you have agreed to have additional work performed at your own expense.
The AOB cannot assign the right to recover attorney fees to the third-party assignee. In a suit related to an assignment agreement for claims arising under a residential or commercial property damage, the right to recover attorney fees stays with the assignor.
Florida law prohibits a third-party assignee from including the following charges/fees in an AOB:
- A penalty or fee for rescission of the AOB during the timeframes outlined in the AOB.
- A check or mortgage processing fee.
- A penalty or fee for cancellation of the AOB.
- An administrative fee.
If you are concerned with the language or terms of the contract, you should seek legal advice prior to signing the AOB. If you have questions as to whether the AOB incorporates the provisions required by Florida law, you may contact the Florida Department of Financial Services Insurance Consumer Helpline at 877-693-5236. If the AOB complies with all requirements stipulated by law, once the AOB has been signed, if the third-party assignee will not agree to release you from the contract, the only recourse is to pursue resolution in a court of law.
What responsibilities does the third-party assignee have under an assignment of benefits?
The assignee must provide a copy of the AOB to your insurance company within 3 business days following its execution, or the date work commenced, whichever is earlier.
The assignee must comply with certain policyholder duties as stipulated by the policy including the responsibility to maintain records of all services provided, cooperate with the insurance company’s claim investigation and provide the insurance company with requested records and documents related to the services provided. As a pre-condition to filing suit, the assignee must submit to examinations under oath or recorded statements related to the services provided, the associated cost, and the AOB itself.
Is an assignment of benefits a legal contract? How can I get out of the contract?
Yes. An AOB is a legal contract and it must contain three specific cancellation provisions.
- The AOB must provide you with an option to rescind the AOB contract within 14 days following its execution by submitting written notice to the third party.
- The AOB must provide you with the option to rescind the AOB at least 30 days following its execution if the AOB does not contain a commencement date, and the third party has not begun substantial work on the property.
- The AOB must provide you with the option to rescind the AOB if the third party has not “substantially performed” at least 30 days following the scheduled commencement date.
NOTE: Recent legislative changes prohibit a policyholder from assigning any post-loss benefits of a residential or commercial property insurance contract issued or renewed on or after January 1, 2023. Therefore, Assignment of Benefit agreements may not be established for claims made under contracts subject to this new 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 damage 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.
- Depending on the language in the AOB, the insurance company may only be permitted to communicate directly with the third party and you may lose all rights to the insurance claim, including the right to mediate the claim, or to make any decisions regarding the claim, including repairs.
- 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.
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. You must also verify if your policy prohibits or otherwise restricts an AOB.
- Immediately following a loss, you have a contractual duty to mitigate your damages and make any temporary repairs to prevent further damage from occurring. Document any existing damage with photographs prior to making any repairs. Do not make permanent repairs prior to an inspection by the insurance 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. If you do not agree with the provisions of the AOB, you may be able to negotiate the provisions of the contract. You do not need to sign an AOB 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 clearly understand what rights and benefits you may be signing away.
- 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.
Assignment of Benefits (AOB) is an agreement that 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.
Assignor is a person who assigns insurance claims rights or policy benefits to another person or entity through an AOB.
Assignee or Third-Party is a person or entity who is assigned insurance claims rights or policy benefits 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.
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.
Assignment of Benefits Video View this scenario-based video to understand how signing an Assignment of Benefits may impact you as a policyholder. Watch Video
Assignment of Benefits Brochure This downloadable brochure includes definitions, tips and information on Assignment of Benefits. English or Spanish
Consumer Tips & Red Flags Know your rights and the red flags to look for when making a decision concerning Assignment of Benefits. English or Spanish
What to Expect After Filing a Homeowners Claim Learn more about what to expect after reporting a claim to your insurance company or agent. English , Spanish or Creole
What to Expect After Filing a Homeowners Claim Related to a Hurricane Learn more about what to expect after reporting a hurricane-related claim to your insurance company or agent. English , Spanish or Creole
The Flood Claims Process Learn more about what to expect after reporting a flood claim to your insurance company or agent. English
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