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What is an assignment of benefits?

The last time you sought medical care, you likely made an appointment with your provider, got the treatment you needed, paid your copay or deductible, and that was it. No paperwork, no waiting to be reimbursed; your doctor received payment from your insurance company and you both went on with your lives.

This is how most people receive health care in the U.S. This system, known as assignment of benefits or AOB, is now being used with other types of insurance, including auto and homeowners coverage . 

What is an assignment of benefits?  

An AOB is a legal agreement that allows your insurance company to directly pay a third party for services performed on your behalf. In the case of health care, it could be your doctor or another medical professional providing care. With a homeowners, renters, or auto insurance claim, the third party could be a contractor, auto repair shop, or other facility.

Assignment of benefits is legal, thanks to a concept known as freedom of contract, which says two parties may make a private agreement, including the forfeiture of certain rights, and the government may not interfere. There are exceptions, making freedom of contract something less than an absolute right. For example, the contract may not violate the law or contain unfair terms.

Not all doctors or contractors utilize AOBs. Therefore, it’s a good idea to make sure the doctor or service provider and you are on the same page when it comes to AOBs before treatment or work begins.

How an AOB works

The function of an AOB agreement varies depending on the type of insurance policy involved, the healthcare provider, contractor, or service provider, and increasingly, state law. Although an AOB is normal in health insurance, other applications of assignment of benefits have now included the auto and homeowners insurance industry.

Because AOBs are common in health care, you probably don’t think twice about signing a piece of paper that says “assignment of benefits” across the top. But once you sign it, you’re likely turning over your right to deal with your insurance company regarding service from that provider. Why would you do this? 

According to Dr. David Berg of Redirect Health , the reason is simple: “Without an AOB in place, the patient themselves would be responsible for paying the cost of their service and would then file a claim with their insurance company for reimbursement.”

With homeowners or auto insurance, the same rules apply. Once you sign the AOB, you are effectively out of the picture. The contractor who reroofs your house or the mechanic who rebuilds your engine works with your insurance company by filing a claim on your behalf and receiving their money without your help or involvement.

“Each state has its own rules, regulations, and permissions regarding AOBs,” says Gregg Barrett, founder and CEO of WaterStreet , a cloud-based P&C insurance administration platform. “Some states require a strict written breakdown of work to be done, while others allow assignment of only parts of claims.” 

Within the guidelines of the specific insurance rules for AOBs in your state, the general steps include:

• You and your contractor draw up an AOB clause as part of the contract.
• The contract stipulates the exact work that will be completed and all necessary details.
• The contractor sends the completed AOB to the insurance company where an adjuster reviews, asks questions, and resolves any discrepancies.
• The contractor’s name (or that of an agreed-upon party) is listed to go on the settlement check.

After work is complete and signed off, the insurer will issue the check and the claim will be considered settled.

Example of an assignment of benefits  

If you’re dealing with insurance, how would an AOB factor in? Let’s take an example. “Say you have a water leak in the house,” says Angel Conlin, chief insurance officer at Kin Insurance . “You call a home restoration company to stop the water flow, clean up the mess, and restore your home to its former glory. The restoration company may ask for an assignment of benefits so it can deal directly with the insurance company without your input.”

In this case, by eliminating the homeowner, whose interests are already represented by an experienced insurance adjustor, the AOB reduces redundancy, saves time and money, and allows the restoration process to proceed with much greater efficiency.

When would you need to use an assignment of benefits?  

An AOB can simplify complicated and costly insurance transactions and allow you to turn these transactions over to trusted experts, thereby avoiding time-consuming negotiations. 

An AOB also frees you from paying the entire bill upfront and seeking reimbursement from your insurance company after work has been completed or services rendered. Since you are not required to sign an assignment of benefits, failure to sign will result in you paying the entire medical bill and filing for reimbursement. The three most common uses of AOBs are with health insurance, car insurance, and homeowners insurance.

Assignment of benefits for health insurance

As discussed, AOBs in health insurance are commonplace. If you have health insurance, you’ve probably signed AOBs for years. Each provider (doctor) or practice requires a separate AOB. From your point of view, the big advantages of an AOB are that you receive medical care, your doctor and insurance company work out the details and, in the event of a disagreement, those two entities deal with each other. 

Assignment of benefits for car owners

If your car is damaged in an accident and needs extensive repair, the benefits of an AOB can quickly add up. Not only will you have your automobile repaired with minimal upfront costs to you, inconvenience will be almost nonexistent. You drop your car off (or have it towed), wait to be called, told the repair is finished, and pick it up. Similar to a health care AOB, disagreements are worked out between the provider and insurer. You are usually not involved.

Assignment of benefits for homeowners  

When your home or belongings are damaged or destroyed, your primary concern is to “return to normal.” You want to do this with the least amount of hassle. An AOB allows you to transfer your rights to a third party, usually a contractor, freeing you to deal with the crisis at hand.

When you sign an AOB, your contractor can begin immediately working on damage repair, shoring up against additional deterioration, and coordinating with various subcontractors without waiting for clearance or communication with you.

The fraud factor

No legal agreement, including an AOB, is free from the possibility of abuse or fraud. Built-in safeguards are essential to ensure the benefits you assign to a third party are as protected as possible.

In terms of what can and does go wrong, the answer is: plenty. According to the National Association of Mutual Insurance Companies (NAMICs), examples of AOB fraud include inflated invoices or charges for work that hasn’t been done. Another common tactic is to sue the insurance company, without the policyholder’s knowledge or consent, something that can ultimately result in the policyholder being stuck with the bill and higher insurance premiums due to losses experienced by the insurer.

State legislatures have tried to protect consumers from AOB fraud and some progress has been made. Florida, for example, passed legislation in 2019 that gives consumers the right to rescind a fraudulent contract and requires that AOB contracts include an itemized description of the work to be done. Other states, including North Dakota, Kansas, and Iowa have all signed NAMIC-backed legislation into law to protect consumers from AOB fraud.

The National Association of Insurance Commissioners (NAIC), offers advice for consumers to help avoid AOB fraud and abuse:

• File a claim with your insurer before you hire a contractor. This ensures you know what repairs need to be made.
• Don’t pay in full upfront. Legitimate contractors do not require it.
• Get three estimates before selecting a contractor.
• Get a full written contract and read it carefully before signing.
• Don’t be pressured into signing an AOB. You are not required to sign an AOB.

Pros and cons of an assignment of benefits  

The advantages and disadvantages of an AOB agreement depend largely on the amount and type of protection your state’s insurance laws provide.  

Pros of assignment of benefits

With proper safeguards in place to reduce opportunities for fraud, AOBs have the ability to streamline and simplify the insurance claims process.

• An AOB frees you from paying for services and waiting for reimbursement from your insurer.
• Some people appreciate not needing to negotiate with their insurer.
• You are not required to sign an AOB.

Cons of assignment of benefits

As with most contracts, AOBs are a double-edged sword. Be aware of potential traps and ask questions if you are unsure.

• Signing an AOB could make you the victim of a scam without knowing it until your insurer refuses to pay.
• An AOB doesn’t free you from the ultimate responsibility to pay for services rendered, which could drag you into expensive litigation if things go south.
• Any AOB you do sign is legally binding.

The takeaway  

An AOB, as the health insurance example shows, can simplify complicated and costly insurance transactions and help consumers avoid time-consuming negotiations. And it can save upfront costs while letting experts work out the details.

It can also introduce a nightmare scenario laced with fraud requiring years of costly litigation. Universal state-level legislation with safeguards is required to avoid the latter. Until that is in place, your best bet is to work closely with your insurer when signing an AOB. Look for suspicious or inflated charges when negotiating with contractors, providers, and other servicers.

EDITORIAL DISCLOSURE : The advice, opinions, or rankings contained in this article are solely those of the Fortune Recommends ™ editorial team. This content has not been reviewed or endorsed by any of our affiliate partners or other third parties.

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

• Main content

What is an assignment of benefits agreement?

How does assignment of benefits work.

• Assignment of benefits example

Assignment of benefits for homeowners

Assignment of benefits in healthcare, pros and cons of an aob agreement, canceling an aob agreement, the bottom line, an assignment of benefits contract lets someone else bill an insurance provider on your behalf.

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• An assignment of benefits is a contract that lets a service provider bill your insurance company directly.
• These agreements are often used in industries like healthcare and home repair.
• Assigning your benefits to someone else can streamline payments, but may increase fraud risk.

When you obtain insurance, whether for your health or your home , you're probably thinking about what the coverage will pay for, not how the payments will be made. 

Policyholders who sign an assignment of benefits agreement allow their insurance benefits to go directly to the service provider. Usually, this eliminates the headache of dealing with an insurance company's claims department. But it can also open you up to potential fraud.

An assignment of benefits (AOB) agreement is a contract that a policyholder signs to allow a third party to receive their insurance benefits.

"An assignment of benefits is designating who's going to receive the payment that the insurance company issues after a claim is received," explains Lauren Winans, chief executive officer and principal HR consultant at Next Level Benefits , an HR consulting firm that helps companies navigate employee benefits including insurance.

Without an AOB agreement in place, the policyholder would pay the other party out of their own pocket, then file a claim with their insurance company to get reimbursed.

For example, if you go to a doctor, you might sign an AOB agreement so that their billing department can deal with the insurance provider directly. Ideally, that would prevent you from having to get involved with the claims department at your insurance company. 

That said, there can still be circumstances where you have to get involved, even with an assignment of benefits agreement — for example, if you owe the difference between what your doctor charges and what the insurer pays.

These AOB agreements can vary depending on factors like the type of insurance policy, the provider, and state laws. In some cases, an AOB happens automatically. If you go to an in-network doctor, they're under contract with that insurance company. That contract states that the provider will handle billing and receive payment directly from the insurance company, Winans says. But with out-of-network providers you might sign an AOB agreement as part of standard check-in paperwork. That way the doctor can still receive at least some payment directly from the insurance company, and then bill you for the remainder. 

Similarly, with property insurance, a contractor or other type of service professional might ask you to sign an assignment of benefits for repair work. When that happens, the service provider would be able to file a claim on your behalf and receive reimbursement from the insurance company. 

The exact terms of an AOB agreement vary based on who's asking you to sign. Some agreements might be specific to one type of repair or project, whereas others might cover several. Some agreements go beyond an assignment of benefits and give the contractor full power of attorney rights, says Angel Conlin, chief insurance officer at Kin Insurance , a home insurance provider. Insurers can also differ in how they handle these agreements. A 2019 Florida law, for example, enables insurers to offer policies that restrict the right to use an assignment of benefits agreement, as long as the policy is offered at a discount. Conlin says Kin Insurance policyholders who waive their assignment of benefits right save an average of 5% on their policy. "The good news is they get a discount for giving up a right they probably never knew they had and never really want to use," she says.

For homeowners' insurance, an AOB agreement could be used if a contractor wants to get paid directly from the insurer. In many cases, says Conlin, that happens in a high-pressure situation. 

"You discover that there's a water leak and your house is flooding. So you quickly call the fastest place you can find," she says. "Then you're standing there with some papers on a clipboard in front of you to sign so they can start sucking the water out. Oftentimes, there's an assignment of benefits included in there."

In healthcare, an AOB agreement might be used to pay a medical professional that you don't necessarily choose, like an anesthesiologist, Winans says. You may have chosen a surgeon, but the anesthesiologist that gets assigned to you the day of the surgery might bill separately. So, you might be asked to sign an assignment of benefits when you check in. "You're essentially signing that anyone who sees me today can accept payment directly from the insurance company, it doesn't have to go through me as the patient," Winans adds.

An AOB agreement can make the claims and payment processes easier at times, but there are also some downsides to note. Much depends on the situation, so consider factors like what your insurer allows and what the service provider is specifically asking for. 

Here are some general pros and cons to consider:

Even though an AOB agreement can streamline the claims and payment processes, there can be downsides that come with transferring benefits to another party, particularly with property insurance. "Because they now stand in the shoes of the insured, they can do everything without asking the insured's permission," Conlin says. For example, a vendor could inflate a claim and commit fraud, she says, causing the claim to get denied and leaving the homeowner unable to get their home repaired. Or, the vendor could sue the insurance company on your behalf for payment on an inflated claim. "So then the insured doesn't have any idea that all of a sudden they have a lawsuit on their record," Conlin adds.

In Florida, these types of lawsuits became an issue due to a state law that helped contractors get attorney's fees paid for by the insurance company. That incentivized some attorneys to work with contractors to obtain AOB agreements and then sue insurers. "That way, the vendor gets to inflate the amount they're demanding, and the attorney gets attorney's fees. So it was this sort of symbiotic partnership between them," Conlin says. A 2022 Florida law removed this allowance, but contractors are trying to fight it in court .

Depending on the circumstances, including laws where you live, policyholders might have some flexibility to cancel an assignment of benefits agreement. For example, in Florida, homeowners have at least 14 days to back out of an agreement without any penalties. 

Once the grace period passes, there isn't much recourse. For example, a vendor might file a lawsuit long after the period passes where you can rescind the agreement. In that case, the assignment of benefits agreement stands.

An AOB agreement can make it easy for you to receive insurance benefits without dealing with the claims department at your insurance company. But not all agreements look the same, so read carefully before signing. In some cases, like healthcare, the agreement could work well for all parties. But in other cases, such as home repairs, it might be benefitting the vendor more than the policyholder. If you're unsure about what an assignment of benefits agreement means for you, consider talking to a professional. Your insurer should be able to explain what's allowed in your situation, and external experts, like an attorney, might help you make a more informed decision.

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The Good and Bad of Assignment of Benefits Agreements

• August 23, 2022

An Assignment of Benefits Agreement (AOB) is an agreement that allows a third party to work directly with your insurance company on your behalf. If an AOB is signed, the third party can file insurance claims, collect money and make decisions without having you do anything extra. While this all may sound great for you, there are some things you need to consider before signing an Assignment of Benefits Agreement.

Where you may see an Assignment of Benefits agreement:

If you are a homeowner and have some unexpected damage to your house, such as a water leak, you would naturally hire a contractor to fix the damage. One of your contractor’s selling points might include taking care of all the paperwork. The paperwork would most likely have an AOB. Unfortunately, this could result in more of a headache for you than working with your insurance agent yourself.

Contractors like to work directly with insurance companies to try and get the most money out of them for the hard work they did or will be doing on your home. If your contractor inflated the price of a claim, the insurance company will take its time and maybe even fight the claim. This process could take weeks. This means your house could still be in shambles, or the damage could be getting worse. If the work has been completed, but the insurance company hasn’t settled yet, the contractor can place a lien on your home until you pay, which could mean money out of your own pocket.

If the insurance company agrees to pay the large amount of money, it could result in your premium going up. Insurance companies need money to pay claims to remain in business. The way that they get this money is by increasing your premiums.

If you find yourself being asked to sign an Assignment of Benefits Agreement, be cautious before doing so. Not sure if you should sign one? Reach out to a DSI agent, and we can talk you through it to see if it is the best route for you to take.

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An assignment of benefits, or AOB, is a legal tool that allows an insurer to directly pay a third party for services performed rather than reimbursing a claimant afterwards. In recent years, insurers have experienced an increase in fraud and abuse of assignment of benefit provisions, resulting in higher costs.

Assignment of rights to collect under an insurance policy after a loss are common. In many cases, homeowners will assign the right to collect to contractors or other service providers following a loss. Vendors soliciting AOBs from policyholders are typically associated with property insurance, auto repair, and personal insurance claims. While such assignment may allow policyholders to make emergency repairs more quickly, the practice has resulted in many homeowners becoming the victims of scam artists and other unscrupulous service providers. Contractors have sought to unilaterally establish the value of the claim and demand payment for inflated invoices. Many contractors also work with attorneys that then sue the insurance company over the claim.

State legislatures have sought to protect insurance consumers from AOB abuse by imposing common sense limitations, and 2019 finally saw some progress. For example, for the past several years, the Florida legislature has sought to put some parameters around the use of assignment of benefits to curtail the explosion of lawsuits filed by contractors and attorneys allegedly on behalf of consumers who knew nothing about the lawsuits. The only beneficiary of such fraud were the unscrupulous lawyers and contractors. In 2019, AOB reform legislation finally passed the Florida legislature, and was signed into law by the governor. Among other things, the new law gives policyholders the right to rescind the contract, and mandates that the assignment include an itemized description of the work to be done. Similarly, governors in North Dakota, Kansas, and Iowa all signed into law NAMIC-backed legislation to protect consumers from abusive assignment of benefit practices.

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Assignment of benefits: what you need to know.

• August 17, 2022
• Steven Schwartzapfel

Insurance can be useful, but dealing with the back-and-forth between insurance companies and contractors, medical specialists, and others can be a time-consuming and ultimately unpleasant experience. You want your medical bills to be paid without having to act as a middleman between your healthcare provider and your insurer.

However, there’s a way you can streamline this process. With an assignment of benefits, you can designate your healthcare provider or any other insurance payout recipient as the go-to party for insurance claims. While this can be convenient, there are certain risks to keep in mind as well.

Below, we’ll explore what an assignment of insurance benefits is (as well as other forms of remediation), how it works, and when you should employ it. For more information, or to learn whether you may have a claim against an insurer, contact Schwartzapfel Lawyers now at 1-516-342-2200 .

What Is an Assignment of Benefits?

An assignment of benefits (AOB) is a legal process through which an insured individual or party signs paperwork that designates another party like a contractor, company, or healthcare provider as their insurance claimant .

Suppose you’re injured in a car accident and need to file a claim with your health insurance company for medical bills and related costs. However, you also need plenty of time to recover. The thought of constantly negotiating between your insurance company, your healthcare provider, and anyone else seems draining and unwelcome.

With an assignment of benefits, you can designate your healthcare provider as your insurance claimant. Then, your healthcare provider can request insurance payouts from your healthcare insurance provider directly.

Through this system, the health insurance provider directly pays your physician or hospital rather than paying you. This means you don’t have to pay your healthcare provider. It’s a streamlined, straightforward way to make sure insurance money gets where it needs to go. It also saves you time and prevents you from having to think about insurance payments unless absolutely necessary.

What Does an Assignment of Benefits Mean?

An AOB means that you designate another party as your insurance claimant. In the above example, that’s your healthcare provider, which could be a physician, hospital, or other organization.

With the assignment of insurance coverage, that healthcare provider can then make a claim for insurance payments directly to your insurance company. The insurance company then pays your healthcare provider directly, and you’re removed as the middleman.

As a bonus, this system sometimes cuts down on your overall costs by eliminating certain service fees. Since there’s only one transaction — the transaction between your healthcare provider and your health insurer — there’s only one set of service fees to contend with. You don’t have to deal with two sets of service fees from first receiving money from your insurance provider, then sending that money to your healthcare provider.

Ultimately, the point of an assignment of benefits is to make things easier for you, your insurer, and anyone else involved in the process.

What Types of Insurance Qualify for an Assignment of Benefits?

Most types of commonly held insurance can work with an assignment of benefits. These insurance types include car insurance, healthcare insurance, homeowners insurance, property insurance, and more.

Note that not all insurance companies allow you to use an assignment of benefits. For an assignment of benefits to work, the potential insurance claimant and the insurance company in question must each sign the paperwork and agree to the arrangement. This prevents fraud (to some extent) and ensures that every party goes into the arrangement with clear expectations.

If your insurance company does not accept assignments of benefits, you’ll have to take care of insurance payments the traditional way. There are many reasons why an insurance company may not accept an assignment of benefits.

To speak with a Schwartzapfel Lawyers expert about this directly, call 1-516-342-2200 for a free consultation today. It will be our privilege to assist you with all your legal questions, needs, and recovery efforts.

Who Uses Assignments of Benefits?

Many providers, services, and contractors use assignments of benefits. It’s often in their interests to accept an assignment of benefits since they can get paid for their work more quickly and make critical decisions without having to consult the insurance policyholder first.

Imagine a circumstance in which a homeowner wants a contractor to add a new room to their property. The contractor knows that the scale of the project could increase or shrink depending on the specifics of the job, the weather, and other factors.

If the homeowner uses an assignment of benefits to give the contractor rights to make insurance claims for the project, that contractor can then:

• Bill the insurer directly for their work. This is beneficial since it ensures that the contractor’s employees get paid promptly and they can purchase the supplies they need.
• Make important decisions to ensure that the project completes on time. For example, a contract can authorize another insurance claim for extra supplies without consulting with the homeowner beforehand, saving time and potentially money in the process.

Practically any company or organization that receives payments from insurance companies may choose to take advantage of an assignment of benefits with you. Example companies and providers include:

• Ambulance services
• Drug and biological companies
• Lab diagnostic services
• Hospitals and medical centers like clinics
• Certified medical professionals such as nurse anesthetists, nurse midwives, clinical psychologists, and others
• Ambulatory surgical center services
• Permanent repair and improvement contractors like carpenters, plumbers, roofers, restoration companies, and others
• Auto repair shops and mechanic organizations

Advantages of Using an Assignment of Benefits

An assignment of benefits can be an advantageous contract to employ, especially if you believe that you’ll need to pay a contractor, healthcare provider, and/or other organization via insurance payouts regularly for the near future.

These benefits include but are not limited to:

• Save time for yourself. Again, imagine a circumstance in which you are hospitalized and have to pay your healthcare provider through your health insurance payouts. If you use an assignment of benefits, you don’t have to make the payments personally or oversee the insurance payouts. Instead, you can focus on resting and recovering.
• Possibly save yourself money in the long run. As noted above, an assignment of benefits can help you circumvent some service fees by limiting the number of transactions or money transfers required to ensure everyone is paid on time.
• Increased peace of mind. Many people don’t like having to constantly think about insurance payouts, contacting their insurance company, or negotiating between insurers and contractors/providers. With an assignment of benefits, you can let your insurance company and a contractor or provider work things out between them, though this can lead to applications later down the road.

Because of these benefits, many recovering individuals, car accident victims, homeowners, and others utilize AOB agreements from time to time.

Risks of Using an Assignment of Benefits

Worth mentioning, too, is that an assignment of benefits does carry certain risks you should be aware of before presenting this contract to your insurance company or a contractor or provider. Remember, an assignment of benefits is a legally binding contract unless it is otherwise dissolved (which is technically possible).

The risks of using an assignment of benefits include:

• You give billing control to your healthcare provider, contractor, or another party. This allows them to bill your insurance company for charges that you might not find necessary. For example, a home improvement contractor might bill a homeowner’s insurance company for an unnecessary material or improvement. The homeowner only finds out after the fact and after all the money has been paid, resulting in a higher premium for their insurance policy or more fees than they expected.
• You allow a contractor or service provider to sue your insurance company if the insurer does not want to pay for a certain service or bill. This can happen if the insurance company and contractor or service provider disagree on one or another billable item. Then, you may be dragged into litigation or arbitration you did not agree to in the first place.
• You may lose track of what your insurance company pays for various services . As such, you could be surprised if your health insurance or other insurance premiums and deductibles increase suddenly.

Given these disadvantages, it’s still wise to keep track of insurance payments even if you choose to use an assignment of benefits. For example, you might request that your insurance company keep you up to date on all billable items a contractor or service provider charges for the duration of your treatment or project.

For more on this and related topic, call Schwartzapfel Lawyers now at 1-516-342-2200 .

How To Make Sure an Assignment of Benefits Is Safe

Even though AOBs do carry potential disadvantages, there are ways to make sure that your chosen contract is safe and legally airtight. First, it’s generally a wise idea to contact knowledgeable legal representatives so they can look over your paperwork and ensure that any given assignment of benefits doesn’t contain any loopholes that could be exploited by a service provider or contractor.

The right lawyer can also make sure that an assignment of benefits is legally binding for your insurance provider. To make sure an assignment of benefits is safe, you should perform the following steps:

• Always check for reviews and references before hiring a contractor or service provider, especially if you plan to use an AOB ahead of time. For example, you should stay away if a contractor has a reputation for abusing insurance claims.
• Always get several estimates for work, repairs, or bills. Then, you can compare the estimated bills and see whether one contractor or service provider is likely to be honest about their charges.
• Get all estimates, payment schedules, and project schedules in writing so you can refer back to them later on.
• Don’t let a service provider or contractor pressure you into hiring them for any reason . If they seem overly excited about getting started, they could be trying to rush things along or get you to sign an AOB so that they can start issuing charges to your insurance company.
• Read your assignment of benefits contract fully. Make sure that there aren’t any legal loopholes that a contractor or service provider can take advantage of. An experienced lawyer can help you draft and sign a beneficial AOB contract.

Can You Sue a Party for Abusing an Assignment of Benefits?

Sometimes. If you believe your assignment of benefits is being abused by a contractor or service provider, you may be able to sue them for breaching your contract or even AOB fraud. However, successfully suing for insurance fraud of any kind is often difficult.

Also, you should remember that a contractor or service provider can sue your insurance company if the insurance carrier decides not to pay them. For example, if your insurer decides that a service provider is engaging in billing scams and no longer wishes to make payouts, this could put you in legal hot water.

If you’re not sure whether you have grounds for a lawsuit, contact Schwartzapfel Lawyers today at 1-516-342-2200 . At no charge, we’ll examine the details of your case and provide you with a consultation. Don’t wait. Call now!

Assignment of Benefits FAQs

Which states allow assignments of benefits.

Every state allows you to offer an assignment of benefits to a contractor and/or insurance company. That means, whether you live in New York, Florida, Arizona, California, or some other state, you can rest assured that AOBs are viable tools to streamline the insurance payout process.

Can You Revoke an Assignment of Benefits?

Yes. There may come a time when you need to revoke an assignment of benefits. This may be because you no longer want the provider or contractor to have control over your insurance claims, or because you want to switch providers/contractors.

To revoke an assignment of benefits agreement, you must notify the assignee (i.e., the new insurance claimant). A legally solid assignment of benefits contract should also include terms and rules for this decision. Once more, it’s usually a wise idea to have an experienced lawyer look over an assignment of benefits contract to make sure you don’t miss these by accident.

Contact Schwartzapfel Lawyers Today

An assignment of benefits is an invaluable tool when you need to streamline the insurance claims process. For example, you can designate your healthcare provider as your primary claimant with an assignment of benefits, allowing them to charge your insurance company directly for healthcare costs.

However, there are also risks associated with an assignment of benefits. If you believe a contractor or healthcare provider is charging your insurance company unfairly, you may need legal representatives. Schwartzapfel Lawyers can help.

As knowledgeable New York attorneys who are well-versed in New York insurance law, we’re ready to assist with any and all litigation needs. For a free case evaluation and consultation, contact Schwartzapfel Lawyers today at 1-516-342-2200 !

Schwartzapfel Lawyers, P.C. | Fighting For You™™

What Is an Insurance Claim? | Experian

What is assignment of benefits, and how does it impact insurers? | Insurance Business Mag

Florida Insurance Ruling Sets Precedent for Assignment of Benefits | Law.com

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Assignment of Benefits (AOB) 101 – What You Need to Know To Stay Safe

Assignment of benefits is a legal contract between you and a third party, such as a roofer, contractor, or other vendors. The AOB allows you to transfer specific rights that your insurance policy grants you to a third party. These rights can include filing a claim , financial payments to a contractor, and even allowing the third party to file a lawsuit on your behalf ! 

While there are reputable entities that use this form, AOBs have often been abused and broadly written. In some cases, they can give away all of your rights under your insurance policy to a third party. Unethical contractors commonly use AOBs to inflate damages and the cost of a claim, which results in legal battles and increased insurance premiums.

How To Avoid an Assignment of Benefits

Assignment of benefits (AOB) is commonly used when a homeowner experiences roof damage, a leaky pipe, etc., and they contact a contractor for assistance. The contractor may take this time to present the homeowner with an AOB. Most Assignment of Benefits agreements presented to the homeowner allows the contractor to stand in the homeowner’s shoes for insurance payment purposes. 

What To Look Out For? 

If the contractor hands you a form that reads, “I transfer and assign all insurance rights, benefits, and causes of action under my property insurance policy to the contractor.” They are asking you to sign away your rights to the claim under your homeowner’s insurance policy, and you don’t want that!  If you experience a loss, be sure to contact your insurance company first before doing anything else . This will help protect yourself and avoid dealing with an AOB issue altogether.

Here are some red flags to look out for:

• Someone knocks on your door to tell you about damage to your home that you had no idea about
• Someone says you will get a free kitchen or free roof for no particular reason
• They claim the damage is a lot more than it clearly is
• Permanent repairs start before your insurance company is allowed to inspect or be notified
• They claim to cover your deductible

Protect Yourself

If something sounds too good to be true, it probably is. Don’t be a victim of AOB. Contact your Bankers’ agent if you have any questions or concerns. Our agents are available to answer any questions you may have, don’t hesitate to call us at 800-627-0000.

Stay safe! It’s hurricane season, and we’ve got  tips  to keep you and your loved ones safe, as well as a  free hurricane survival guide . The  National Oceanic and Atmospheric Administration Hurricane Center  is another excellent resource that tracks hurricanes and tropical storms.

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Assignment of benefits

An agreement that gives your claims benefits to someone else.

What is an assignment of benefits?

An assignment of benefits (or AOB for short) is an agreement that gives your claims benefits, and in some instances complete control of your claim, to someone else. It’s usually used so that a contractor can "stand in your shoes" and file a claim, make decisions about repairs, and collect insurance payments from your insurance company directly for covered repairs. In some states, the contractor will even file a lawsuit against your insurer as your assignee.

Why do homeowners agree to an assignment of benefits?

Homeowners may sign an assignment of benefits form because they think it’s more convenient and efficient than dealing with the claims process firsthand.

Once a contractor has been assigned your benefits, they tell the insurance company what work they believe is required and negotiate the claim. For example, say you have a water leak in the house. You call a home restoration company to stop the water flow, clean up the mess, and restore your home to its former glory. The restoration company may ask for an assignment of benefits so it can deal directly with the insurance company without your input. That may sound like a relief at first glance – someone else can deal with all that!

But signing away your rights in the claims process may not be worth the risk.

Assignment of benefits in Florida: a case of rampant fraud

Because the assignment of benefits takes control out of the homeowner’s hands, insurance fraud is a major concern. Some contractors may take advantage of the situation and inflate repair needs and costs or bill for work that was never completed. They may also hire attorneys to sue the insurance company if it does not pay the full amount of their estimate or denies claims.

These lawsuits became a huge problem in Florida – by 2018, there were 135,000 AOB lawsuits , a 70 percent increase in 15 years. On the whole, the FBI estimates fraudulent claims account for nearly $6 billion of the $80 billion appropriated for post-hurricane reconstruction.

Florida eventually passed a bill in 2019 to curb the abuse of assignment of benefits.

Ultimately, AOB fraud hurts homeowners the most. It increases homeowners insurance rates across the board, and you may be stuck with incomplete work and no recourse.

That’s why we offer a Responsible Repair discount for homeowners who retain their rights during a claim. It’s about a 5 percent discount on average to reward you for proactively protecting yourself and preventing fraud.

What responsibilities does the AOB contractor have?

Once you sign an AOB, a contractor has full power to make all decisions about the claim without consulting you. The assignment of benefits gives contractors the ability to:

• File the insurance claim .
• Work directly with insurance claims adjusters.
• Make repair decisions.
• Complete repairs.
• Directly bill the insurance carrier for all work completed.
• Sue your insurance company regarding your claim.

Sometimes the assignment of benefits limits the scope to the work the contractor was hired for. For example, say your home has a leaky pipe. You may hire a plumber to fix the leak, a remediation company to dry the walls and carpet, and a general contractor to replace the bathroom cabinets. Each of the three contractors may have a respective assignment of benefits for their part of the job.

How assignment of benefits impacts homeowners

Under some circumstances, an assignment of benefits agreement could work out for homeowners who don’t want to handle their insurance claim. If the contractor is reputable, performs the work, and knows what information the insurance company needs, it can be a big help.

For example:

• The claims adjuster will work directly with the contractor.
• The contractor would handle remediation and repairs.
• The contractor would bill the insurance company, not the homeowner.

AOB arrangements only work for covered damage in need of repair. If you must replace belongings or appliances, you’d still need to work directly with your insurer and payments would go to you.

Protecting yourself in an assignment of benefits agreement

Don’t sign an assignment of benefits agreement right off the bat. Before you hire any contractor:

• Get multiple quotes.
• Check references, licenses, and their insurance.
• Get written estimates for potential work.
• Get a guarantee to back the workmanship.
• Make sure you get to approve completed work.
• Request copies of all paperwork sent to your insurance company.
• Require that the contractor show you the documents you are actually signing.

You might be tempted to hire the first contractor you find, but you save yourself headaches if you do some due diligence before signing an assignment of benefits. Great contractors use this to expedite repairs and spare you some work. Take a beat to find that great contractor .

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