Most homeowners don’t know what overhead and profit is in relation to an insurance claim. So for that matter, they don’t know the answer to the question “are you owed overhead and profit for your claims?”
What is overhead and profit?
First, let’s go over what overhead and profit is. Overhead and profit, O&P for short, is what gets applied to an estimate for the rebuild or repair of the property. To clarify some more, O&P is usually calculated at 10% and 10% applied to the estimate. This accounts for the contractor’s overhead required to run the contracting company and profit for the work being performed. An example of this would be the following: if a job is estimated at $5,000 and O&P is added, it would be calculated as follows – $5,000 + 10% for overhead, which comes to $5,500 and then add on another 10% for profit, which would come to $6,050.
Now that we have explained O&P, let’s figure out how it relates to an insurance claim. When you have an insurance claim, the insurance company will send out an adjuster and that adjuster will write an estimate for the damages they observe. There are many factors that go into that adjuster’s estimate, one of them being O&P. The estimate that this adjuster writes is usually what the insurance company bases their payment to you on. As the policyholder you want that adjuster to include as much as possible on their estimate because the higher the estimate the more the insurance company will likely be paying. Since O&P adds to the overall amount of the estimate but doesn’t necessarily change the scope of the estimate it is usually a good thing for the policyholder when it is included in the adjuster’s estimate.
It can be an issue…
Why would the insurance company decide to include or not include overhead and profit? Let me start by saying that an insurance company’s goal should be and is most of the time, to do what’s best for the policyholder and get that policyholder back to a pre-loss condition. An insurance company is a business and claims are a liability for the insurance company. So, they try to reduce that liability as much as possible. This is one reason why they would not include it in their estimate. An insurance company will typically argue that they do not owe O&P, without giving a good reason and will not pay it regardless of the circumstances. Other companies will say that they only include O&P if there is a general contractor that is doing the work or if the repair work required involves three or more trades.
Get what you are owed!
You should be paid for overhead and profit on your claim. The short answer as to why you should be paid O&P on your claim is consistency and ultimately fairness. Why would it be acceptable to pay O&P on one person’s claim and not on another? It wouldn’t! The reasons insurance companies provide for why they don’t pay O&P are arbitrary and have no basis. The three trade reasoning actually has no known origin and is not something that is adopted in the construction industry, it was simply made up by the insurance companies.
To sum things up, O&P is something that you are owed on your claim. If you are in the middle of a claim make sure the insurance company is including this in their estimate. Make sure the insurance company has included everything that is necessary to repair the damages. If you feel that the insurance company is not paying the claim appropriately or not handling the claim appropriately, it may be time to consider hiring a claims professional to help you with your claim.
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