Glossary
What is assignment of benefits and how does it affect who gets paid on an insurance claim?
Assignment of benefits is a legal arrangement where a policyholder transfers their right to receive insurance claim payments directly to a third-party service provider, allowing the provider to bill and collect from the insurer without requiring the policyholder to act as intermediary.
AOB is common in healthcare (patient assigns benefits to a medical provider), property damage restoration (homeowner assigns to a contractor), and legal services. When a valid AOB exists, the insurance company pays the service provider directly, and the policyholder's obligation to pay the provider is contingent on the insurer's payment. Without an AOB, the insurer pays the policyholder, who then theoretically pays the vendor — creating collection risk when policyholders spend the funds before the vendor is paid.
AOB creates a direct contractual relationship between the provider and the insurer. The provider can sue the insurer directly for non-payment; the policyholder is no longer in the middle of a billing dispute. This is valuable leverage in states where direct-action statutes allow such suits.
Several states have restricted or prohibited AOB use in property insurance after abuses by contractors in Florida's roofing and restoration industry. Before relying on an AOB in your business, verify that it is enforceable in the relevant state, that the insurer recognizes it, and that your AOB language is current. A defective AOB that the insurer refuses to honor leaves you back in the position of collecting from the policyholder directly. This is not legal advice.
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