What is Assignment of Benefits (AOB)?

Assignment of Benefits (AOB) is a legal agreement that transfers the insurance claims rights or benefits of the policy from the policyholder to a third party. An AOB gives the third-party authority to file a claim, make repair decisions, and collect insurance payments without the involvement of the policyholder.

In an insurance context, this term often applies when a policyholder experiences property damage (such as water leaks) and then signs an AOB to transfer their insurance claim rights or benefits to a third-party vendor like a contractor or restoration company. Then they deal directly with the insurance company to receive payment for their work, rather than the policyholder having to pay the contractor out of pocket and then seek reimbursement from the insurance company.

While an assignment of benefits agreement can be convenient for the policyholder, as it allows the contractor to handle many aspects of the insurance claims process, it can also lead to disputes between the contractor and the insurance company over the cost, extent, and necessity of repairs or replacements that can impact insurance benefits.

It’s important for policyholders to understand that signing an assignment of benefits agreement is a significant legal decision that should not be taken lightly. They should read any AOB agreement carefully and seek legal advice before signing. They should also check with their insurance company to understand how an AOB may affect their coverage.