The Merits and Demerits of Assignment of Benefits Contract

In the Insurance sector, an owner of an insurance policy has the right to transfer the benefits of the policy and other policy related rights to a beneficiary or a third party, this term is known as Assignment of Benefits (AOB).

The Assignment of Benefits contract is essentially an agreement where you can sign a health or a repair contract which enables you to transfer the benefits and insurance policy rights to another person.  This is an easy way to process claims payments and to smoothen the claims process. 

In What Cases is the Assignment of Benefits Contract used?

The document of the Assignment of Benefits makes the claims process simpler for the applicant. The document is pretty straightforward and its function is just to allow someone except the one who is insured to receive the amount payable by the insurance company with which they have a policy.  The contract is used in a number of cases. Some of these cases are as below:

  • Healthcare industry
  • Service Industry like roofer, plumber, contractor or a water company
  • Third-party Vendors

Uses of Assignment of Benefits Contract

We regularly sign an Assignment of Benefits document especially when we visited a doctor. Hospitals and clinics ask patients to sign an Assignment of Benefits document to allow the hospital to send medical bills to the patient’s health coverage provider without the patient having to pay an entire medical or treatment bill.

The hospital submits this bill to the insurance company or health coverage provider post which they check the patient details and send the money to the hospital. The Assignment of Benefits documents makes the entire process easier to pay medical bills or to cater to the medical needs in a faster and simpler manner.

In cases where you do not sign an Assignment of Benefits contract, the customer will need to contact the third party vendor like the contractor, roofer, plumber or other vendors. In cases where Assignment of Benefits contract is signed though, post assessing the damage the vendor presents the customer with the AOB contract before the work starts.

The AOB helps the contractor deal directly with the insurance company. AOB thus prevents the signee from dealing with the insurance company and the third party has the right to negotiate for the claims and payments on the behalf of the signee. The third party can also, in certain cases, file suits against the insurance company and they have the right to or not to inform the customers about the same.

Drawbacks of Assignment of Benefits Contract

As a principle, the Assignment of Benefitsis a great help as it takes the customer out of the claims chain and makes the process easier. The customer is not bothered much and they do not need to fill estimates to send to insurance companies or negotiate with them about fair claims or worry about receiving payments.

The insured can remove themselves from the hassle by hiring a third party and then eliminate themselves from this tiring process. After this contract, the insurance company can work with third party or contractor.

The document of Assignment of Benefits has its perks as well as drawbacks. Although it is a contract that is signed between the signee and a third party which could be a mitigation company, insurance company or any contractor that gives them the right to directly deal with the payee and receive payment for a claim that earlier belonged to you.

Thus by signing an Assignment of Benefits contract, you give up your right to your claim. In the insurance industry, most agreements of benefits are not fraudulent but in certain industries, these contracts can be misused either by the insurance company or by the third party vendor.

Mistreatment of Assignment of Benefits Contract

Although Agreement of Benefit is created for the benefit of the claimant, it can be misused or abused in certain cases where the person who has been given the right to claim misuses the right. Below are a few cases of abuse of the Assignment of Benefits contract:

  • If the claims that are submitted by the third parties like hospital or service provider are more than what it should be then there might be a feud with the insurance company
  • The signee is not informed about some claims or the claims are higher than what the actual claims should be.

The problem can arise from the end of the insurance company or the contractor. The company might not pay a suitable claim and the third party or contractor might not file the correct claim amount. If the insurance company is not ready to pay as per the claims provided by the contractor then there might be a feud which might harm the customer as their work might not get finished until all legal proceedings are over. In such a case, the Assignment of Benefits contract may harm the customer

What can be done to resolve issues regarding the Assignment of Benefits Contract?

The insurance agents can help solve the problems that might arise due to the Assignment of Benefits contract through the below solutions:

  1. By being available readily for the consumer in case of a claim to ensure they are aware of what is going on
  2. You can make your customers aware of the contractors with whom a problem might arrive in case of a claim so that they avoid working with such contractors
  3. The insurance agent needs to give a heads up to the customers to ensure they know the pros and cons of signing an Assignment of Benefits contract.
  4. The insurance agent can send a leaflet or a newsletter to the customer and detail out the policies and all the important information about claims, how to reach the insurance company or on how to get information.

The process of insurance and claims is complicated and it is important to be completely aware of the drawbacks of the claims process. So when signing any contract or legal document, beware of all the drawbacks of this contract to keep yourself safe from any fraud or misrepresentation.

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