Loss Draft

Definition - What does Loss Draft mean?

A loss draft is a check an insurer will issue to a home owner for damage(s) via natural disasters suffered to their property. An agent from the insurer will commonly come to inspect the damage before issuing a loss draft. After the owner and the insurer have come to terms on the estimated amount to repair the damage, the insurer will issue a loss draft, also known as a loss draft check or claim check.

The loss draft will be co-payable to the owner and to the bank that holds their mortgage.

Insuranceopedia explains Loss Draft

After receiving a loss draft, bank procedures vary slightly from institutions, but most commonly the owner will be required to endorse it and then take it to the mortgage holder. The owner cannot cash the check because it is made out to both the owner and the bank.

If the check is worth $10,000 or less and the loan is in good standing, the bank will typically endorse the check and immediately provide a full amount of funds. If the check is in excess of $10,000, or in any amount but the loan is not in good standing, the bank will monitor the claim.

Typically, the owner will be immediately provided with one third of the amount on the check. After the repairs are 50% completed, the owner contacts the bank and schedules an inspection. If the bank agrees that the repairs are 50% finished, they will provide another third of the check amount.

When 100% of the repairs are completed, the bank will inspect once more and pay the final third of the funds.

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