Loss Draft

What Does Loss Draft Mean?

A loss draft is a check issued by an insurer to a homeowner for damages to their property caused by natural disasters. Typically, an agent from the insurer will inspect the damage before issuing the loss draft. Once the homeowner and insurer agree on the estimated repair costs, the insurer will issue the loss draft, also referred to as a loss draft check or claim check.

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

Insuranceopedia Explains Loss Draft

After receiving a loss draft, bank procedures may vary slightly between institutions, but typically, the homeowner will be required to endorse the check and then present it to the mortgage holder. The homeowner cannot cash the check because it is made out to both the homeowner and the bank.

If the check is for $10,000 or less and the loan is in good standing, the bank will usually endorse the check and provide the full amount of funds immediately. If the check exceeds $10,000 or if the loan is not in good standing, the bank will monitor the claim.

Generally, the homeowner will be provided with one-third of the check amount upfront. After the repairs are 50% complete, the homeowner will contact the bank to schedule an inspection. If the bank confirms that the repairs are 50% finished, they will release another third of the funds.

Once 100% of the repairs are completed, the bank will conduct a final inspection and disburse the remaining third of the funds.