How Do Contractors Get Paid From Insurance Companies? (Restoration Workflow)

By Fabio Freire, Founder & General Contractor at EZ-Estimates. Published 2026-05-01.

How Do Contractors Get Paid From Insurance Companies?

Insurance restoration jobs pay differently than standard construction work. The check is written to the homeowner (sometimes co-payable to the mortgage holder), depreciation is held back until completion, and the adjuster controls the scope. Contractors who do not understand the workflow leave 10-30% of the job unpaid.

Here is the 2026 reality.

The Quick Answer

Insurance restoration payment flow:

Adjuster writes scope and estimate (often using Xactimate)
Insurance issues ACV check (Actual Cash Value, before depreciation)
Check goes to homeowner (sometimes co-payable to the mortgage holder for big claims)
Homeowner endorses check to contractor (or provides cashier check)
Contractor does the work
Final inspection with adjuster (verifying scope completed)
Insurance releases recoverable depreciation (the holdback portion)
Final payment to contractor

The contractor typically receives 50-70% upfront and the remaining 30-50% only after the work is complete and the adjuster approves.

What Is ACV vs RCV?

This is the most misunderstood part:

RCV (Replacement Cost Value): full cost to replace the damaged item with new ACV (Actual Cash Value): RCV minus depreciation

If a 12-year-old roof is damaged in a storm:

RCV: $18,000 (full cost to install a new roof)
Depreciation: 30% (because the old roof had only 70% of its useful life left)
ACV: $12,600 (what insurance pays initially)
Recoverable depreciation: $5,400 (held back, paid AFTER work completes)

The homeowner gets the ACV check immediately. The recoverable depreciation only gets paid IF the homeowner actually completes the repair within the policy timeline (usually 12-24 months).

If the homeowner takes the ACV check and does not repair, they pocket the $12,600 and lose the $5,400 depreciation.

If they hire a contractor to do the repair, the contractor gets paid the ACV upfront and the depreciation after completion.

Who Gets the Check

Three scenarios:

1. Homeowner only (most common, small claims)

Check made out to "John and Jane Homeowner"
Homeowner endorses check to contractor
Funds available to contractor in 1-3 days

2. Homeowner + mortgage holder (common, claims over $25K)

Check made out to "John Homeowner and Wells Fargo Bank"
Both parties must endorse
Bank releases funds in stages (often requires inspection at 50% and 100%)
Funds available to contractor in 5-30 days per stage

3. Direct to contractor (rare, only on AOB states)

Some states allow Assignment of Benefits, where homeowner assigns claim rights to contractor
Florida, Texas (limited), Louisiana, others
Contractor gets paid direct from insurance
Significant fraud risk historically — many states have restricted AOB

The Supplement Process (Where Contractors Make Money Back)

Here is what most contractors miss: the adjuster's original scope is almost always incomplete.

The adjuster writes scope based on a 30-minute walkthrough. The contractor opens up walls and finds:

Additional water damage
Insulation that needs replacement
Unexpected mold remediation
Asbestos requiring abatement
Code-required upgrades (electrical, plumbing, smoke detectors)

These are supplements to the original claim. Documenting and submitting supplements is how contractors get paid for the actual work, not just the original adjuster scope.

Supplement workflow:

Discover the additional damage
Photograph extensively
Document with dimensions, materials, and labor estimate
Submit supplement to adjuster (usually via Xactimate)
Adjuster reviews (1-3 weeks)
Adjuster approves, partially approves, or denies
If approved, additional payment is added to the claim
If denied, escalate to public adjuster or attorney

A typical residential restoration job has 2-5 supplements. Each can add $1,000-15,000 to the claim. Skipping supplements leaves real money unpaid.

How To Speed Up Payment

1. Get the adjuster on the phone weekly. Email is slow. Phone calls move claims forward.

2. Submit supplements as you discover damage, not at the end. Mid-job supplements process faster than end-of-job ones.

3. Use Xactimate (or compatible software). Insurance companies process Xactimate files faster than free-form estimates. Most adjusters require it for claims over $5K.

4. Get the mortgage holder involved early. Wells Fargo, Chase, and other major banks have specific draw schedules and inspection requirements. Knowing them upfront saves weeks of delay.

5. Document everything. Before, during, and after photos. The adjuster cannot deny what you have photographed.

What Insurance Will NOT Pay For

Even legitimate restoration work has gaps:

Code upgrades beyond like-kind-and-quality (sometimes covered, often not)
Owner upgrades (you wanted granite, insurance pays for laminate replacement)
Cosmetic damage (small dents, surface marks)
Pre-existing damage unrelated to the covered loss
Maintenance (gradual wear, neglect)

Anything outside the covered loss is paid by the homeowner directly. Document this clearly in the contract — separate "Insurance Scope" from "Owner Upgrades" line items.

What "Overhead and Profit" Means in Insurance

Insurance restoration estimates typically include a line item called O&P (Overhead and Profit) at 20% (10% overhead + 10% profit) of the total claim above a threshold (usually $5K-10K).

This is industry standard for jobs requiring 3+ trades. A contractor who does not bill O&P is leaving 20% of margin on the table.

If the adjuster's estimate does not include O&P, supplement to add it. Most carriers approve when properly documented.

Common Insurance Carriers and Their Quirks

State Farm: Friendliest to contractors, fast supplement approvals. Allstate: Slow supplement reviews, often denies first time. Resubmit with more documentation. USAA: Premium service, fast and fair. Worth getting on their preferred contractor list if you serve military families. Liberty Mutual: Average. Standard process. Nationwide: Slow on large claims. Ask for adjuster reassignment if you get a difficult one. Citizens (Florida): State-run. Bureaucratic. Submit supplements early and often.

What This Means for the Contractor

If you do insurance restoration work:

Learn Xactimate. Annual license is $1,200-2,500. Pays for itself on the first claim.
Build relationships with adjusters. Local adjusters control scope. Friendly relationships = faster approvals.
Document obsessively. Photos, video, written notes. When in doubt, photograph.
Charge O&P. It is industry standard. Carriers expect it.
Set up financing for the gap. You may wait 30-90 days for final payment. A line of credit covers cash flow.

How EZ-Estimates Helps

EZ-Estimates generates the line items needed for insurance work in seconds. Combine with your Xactimate license for the carrier-side estimating, and EZ-Estimates for the homeowner-facing portion (out-of-pocket upgrades, supplemental scope they pay for directly).

Free 14-day trial.