Purpose
A payment or settlement letter accompanies the issuance of a claims payment. It must explain what is being paid, how the amount was calculated, what coverage applies, and what rights the insured retains regarding any remaining disputed amounts.
When to Send
Payment letters should accompany every claims payment. For property claims, undisputed amounts should be paid promptly even while disputed items remain under investigation.
Required Components
Payment Amount and Basis
State the total payment amount, the coverage under which it is being paid, and the specific items or damages it covers.
Calculation Breakdown
Explain how the payment was calculated:
- Actual cash value (ACV) vs. replacement cost value (RCV)
- Depreciation amounts and methodology
- Deductible applied
- Any prior payments already issued
- Applicable limits or sublimits
Release Language (if applicable)
If the payment is accompanied by a release, explain clearly what the release covers. The release should not be buried in fine print or combined with the payment explanation in a way that could be misleading.
Remaining Claim Status
If additional amounts remain in dispute or under investigation, state that clearly. Explain what is still pending and what the insured can expect next.
Recoverable Depreciation
For property claims with replacement cost coverage, explain how the insured can recover depreciation by completing repairs and submitting documentation.
Jurisdiction Notes
California
California requires that payments for undisputed amounts not be delayed while disputed amounts are investigated. The Fair Claims Settlement Practices Regulations address payment timing and explanation requirements.
Texas
Texas prompt-payment rules require that accepted claims be paid within five business days of notification to the claimant. Failure triggers 18% penalty interest.
Adjuster Guidance
- Never condition payment of undisputed amounts on resolution of disputed items
- Explain depreciation in plain language — most insureds do not understand the ACV/RCV distinction
- Include clear instructions for recoverable depreciation claims
- If a release is required for settlement, ensure it is presented separately from the payment explanation
- Document the payment calculation in the claim file