How to File a Renters Insurance Claim (Process for Payouts on a Loss)

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You knew your building’s plumbing was old, but you thought you’d be out of there before anything terrible happened to it. 

An inch of water (and counting) and several panicked calls to your property manager later, you admit you thought wrong. Now, you’re left with the massive, thankless job of replacing numerous possessions, including your mattress, bookcase, and computer, ruined by the burst water pipe in your bedroom ceiling. 

It’s a good thing you have renters insurance — because you’re about to put your insurance company’s promises to the test. 

How to File a Renters Insurance Claim

Renters insurance covers property losses of the sort caused by a burst pipe in your apartment ceiling — or any other peril mentioned in your renters insurance policy. It’s known as personal property coverage.

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Usually, it also covers medical and liability claims arising from mishaps in your rental unit. For example, it would cover the party guest who slips on your slick kitchen floor and breaks their ankle or the delivery person who tumbles down your rental house’s icy front steps and suffers a concussion.

The claims-filing process is similar for both types of claims, but you’ll notice some differences in the order of operations.

Filing a Claim for Property Loss or Damage

Depending on the circumstances, a renters insurance claim for property loss or damage begins with a police report or a call to the property manager. You must then document the damage — comprehensively.

Don’t throw anything away or clean up until you’ve completed all these steps. If you erase evidence before the insurance company has fully investigated, you could jeopardize your claim. That said, if the property owner needs to make basic repairs to ensure the property remains habitable or not repairing the damage would make it worse, it’s OK to do what’s necessary. 

1. File a Police Report (if Applicable)

If your possessions are damaged in the course of a potential violation of law, call the police and file a report. 

“Potential violation of law” could mean any of the following:

  • Vandalism
  • Burglary
  • Suspicious fire
  • Theft by a guest

More ambiguous incidents, like a fuel explosion inside or outside your building, warrant a police report too. Incidents like a burst pipe or rough weather don’t require a police report.

The police report is vital because it backs up the story you’ll tell the insurance company. It’s an impartial record of the incident — and the extent of the damage — taken by a respected third party.

When dealing with the police, get the name and badge number of every officer and investigator you speak with, even if they don’t visit your apartment in person. Ensure they take copious photos of the damage, and request a copy of the report when it’s done.

2. Contact Your Property Manager

Next, contact the owner or property manager and let them know what happened. If you live in a multiunit building and the incident affected more units than just yours, they might already know, but call them anyway.

The owner or manager probably won’t help you file your renters insurance claim, but they need to know about the incident because they might need to file an insurance claim of their own. Regardless, they’ll want to assess the condition of your unit or the building itself. Be sure to document any lingering hazards, such as:

  • Broken windows
  • Damaged doors or locks
  • Exposed pipes or wiring
  • Suspected gas leaks
  • Nonfunctioning utilities (such as the power being out or the water being off)

If you feel uncomfortable remaining in your unit due to safety concerns or simply can’t stay there, tell the property manager right away. Your renters insurance policy might cover temporary relocation costs, such as staying in a hotel for a week or two while your unit undergoes repairs.

3. Contact the Insurance Company

Your next call goes to your renters insurance company or to your insurance agent if you need their help to file the claim. 

You might be able to file straightforward claims through your insurance company’s website. Look for a File a Claim button or tab on the homepage. But it’s not a bad idea to call the company or your agent directly if you have questions about the process, aren’t sure your policy covers the incident, or want to figure out whether it’s worth it to file a smaller claim. 

4. Document the Damage or Loss

If you filed a police report, the investigators assigned to your case will take photos and make notes of the damage. But you shouldn’t rely on their report to be the sole record of the incident.

So once you’ve made your initial calls, take the time to document what happened meticulously. Take photos and videos of the scene as you found it. Take photos of individual items that sustained damage. Create a list of damaged, destroyed, or stolen goods with the price paid for each and an estimate of the current replacement value. Make copies of receipts or invoices for any expenses incurred due to the incident, including replacements for damaged or stolen possessions and bills for temporary lodging if your apartment is uninhabitable.

If you’ve previously taken a home inventory, include it in your documentation. A home inventory helps back up your claim and could make it easier for the insurance company to reimburse you quickly. Not having one doesn’t mean the insurance company will deny your claim, but it does increase the chances of an insurance adjuster visiting the premises. 

5. Submit the Claim

You’re now ready to submit your claim. Visit your insurance company’s website to download or fill out the required forms and upload photos, videos, notes, and the police report to support your claim. 

If you’re having trouble finding the required forms or submitting your information electronically, contact your insurance company or your insurance agent. Your agent might offer to file the claim on your behalf, though you must be available to answer the insurance company’s questions.

Be sure to file your claim before any deadline imposed by your insurance company. This deadline could come as little as 48 hours after the incident. If more information comes to light or you incur additional expenses after you file, you can update your claim.

6. Prepare for the Investigation & Claims Adjuster Visit

If your claim is fairly small and straightforward, the insurance company might take you at your word and accept your claim without much trouble. In this case, you can start cleaning up your place and move on to the next step — reviewing your settlement offer.

If your claim’s value is higher, the circumstances are murky, or you haven’t provided enough documentation to support your claim, your insurance company could investigate further. Wait to throw out damaged possessions or clean up your space until you hear back.

If your insurer wants to investigate further, expect a call and possibly a visit from a claims adjuster. This person’s job is to verify your story and determine how much compensation you actually deserve for the loss. 

If they visit the property, they’ll take pictures of the damage and make notes for their own report. Be prepared to point out less obvious evidence of damages or losses, and have your home inventory handy to corroborate your claims.

The claims adjuster might also want to talk to others involved in or who have knowledge of the incident. That could include your roommates, houseguests, and the property owner or manager. It could also include the police investigator who wrote up your report.

7. Review the Settlement Offer 

If the insurance company accepts your claim, you’ll receive a settlement offer. 

It’s a formal payout offer for the amount the insurance company is willing to pay to settle your claim after subtracting your policy deductible. It could be about what you thought the damage or loss was worth — less the deductible — or significantly less, depending on how the insurance company values the claim. 

A lot depends on whether the insurance company uses replacement value or actual value when calculating your total personal property claim value. Replacement cost pegs the value of lost or damaged items at what it actually costs to buy new replacements for them. In contrast, actual value (or actual cash value) takes depreciation into account. The difference can be stark: A three-year-old TV with a replacement value of $500 might have an actual cash value of just $100 or $150. 

If your policy has a maximum coverage amount for certain types of personal belongings claims and your place sustained a lot of damage or became uninhabitable for months, you could find your total payout capped at an amount much lower than what you deserve. 

In either case, it’s your responsibility to review the settlement offer and determine whether it’s acceptable to you. If you’re not sure, ask your insurance agent. 

Filing a Claim for Personal Liability and Medical Payments

Renters insurance covers more than your personal possessions. It also protects you from costly liability issues arising from mishaps in your rented home. Without it, you could be on the hook for houseguests’ medical bills, among other injury-related expenses.

Filing a personal liability or medical expenses claim with your rental insurance company is a bit different from filing a property damage claim. To get it done, follow these steps in order.

1. Document the Damage

First, take copious photos and videos of the scene of the incident as soon as you can. For example, if a guest at a party you hosted fell through a railing on your second-floor unit’s balcony, you’d want to take photos of the damaged railing and the area where they hit the ground. 

Next, create a record of the incident as you remember it. If no video record exists, a written record will have to suffice. Describe where you were when it occurred, how you became aware of it, and the sequence of events that followed. 

2. Give Your Insurance Information to the Injured Person

You won’t be filing this claim yourself — the injured person will. To do that, they need your insurance information: company name, your name, and policy number.

It’s their responsibility to reach out to you about this, either directly or through a lawyer. However, you should do everything in your power to help them file the claim, including giving them your insurance agent’s contact information or helping them navigate your insurance company’s online claims forms. 

3. The Injured Person Submits the Claim

When they’re ready to file, the injured person submits their claim to your insurance company. They’ll provide hospital bills, physical therapy bills, receipts for medical equipment like crutches or wheelchairs — any costs arising from their injury. 

Don’t worry about submitting your photos, videos, and notes on the incident at this time. But do hold onto them until the injured party settles the claim, as your insurance company may want to review them.

4. Prepare for the Investigation & Claims Adjuster Visit

Be available to answer any questions from your insurance company during the investigation, and don’t be surprised if they send a claims adjuster to assess the scene of the incident. If you haven’t already done so, the claims adjuster visit is a good time to share your own documentation.

5. The Injured Person Reviews the Settlement Offer 

After completing its investigation, the insurance company sends the injured person a settlement offer for review. If they accept, the insurance company reimburses them and closes the claim. 

For medical-only claims, your insurance company typically covers the portion of the injured person’s medical bills not covered by their own health insurance. 

For personal liability claims, where the injured person sues you for damages, your insurance company covers the amount of the judgment and the injured person’s legal fees if you lose. If you win, your policy might cover your legal fees, but you won’t owe anything to the injured person.

Remember that reimbursement kicks in only after you hit your policy deductible. If the claim is worth $10,000 and your liability deductible is $1,000, the insurer covers $9,000 and you pay $1,000 out of pocket.

Likewise, every renters insurance policy has a personal liability and medical expense coverage limit. If the victim’s injuries are severe, you could blow through this limit. Umbrella insurance provides an additional layer of liability protection — typically starting at $1 million — in such cases.

Renters Insurance Claim FAQs

Filing a renters insurance claim can be confusing and stressful. These are some of the most common questions that come up during the process.

How Long Does the Renters Insurance Claims Process Take?

It depends on the type of claim, the claim value, and what caused the damage or injury.

The insurance company can usually resolve simple, lower-value renters insurance claims within a business day. You file the claim online and upload supporting documentation, and the insurance company gets back to you with a settlement offer within hours.

More complicated claims can take days or weeks to resolve. You might need to provide more documentation, including receipts for expenses incurred days or weeks after the event. If the claim involves significant damage to your unit, you’ll likely need to wait for a claims adjuster to visit and write a report about what happened too.

Does Renters Insurance Cover Temporary Living Expenses?

Some renters insurance policies do cover additional living expenses if you’re forced to move out of your unit temporarily. Usually, the policy caps this coverage at a specific amount of money or number of days.

Check your policy for details about this type of coverage. If you don’t have it and think you need it, ask your insurance company or insurance agent to price it out for you. Temporary living expense coverage will increase your premium, but you’ll be glad you have it if you have to move out of a damaged apartment.

Will Filing a Renters Claim Affect My Insurance Rate?

Probably. How much is a more interesting question. 

Generally, liability, fire, and theft claims increase premiums more than medical claims. Don’t be surprised if your premium jumps by 20% or more after a fire or theft claim. Medical bill-only claims should still increase your premium, but by a more reasonable rate — typically under 20%, depending on your insurer. 

What Happens if the Insurance Company Denies My Claim?

It depends on why the insurance company denied your claim. 

Sometimes, there’s not much you can do about a denied claim. If your policy specifically excludes the type of incident or expense, your insurer has every right to deny the claim. Even if your policy covers the claim type under normal circumstances, a smaller claim might fail to hit your deductible.

That said, if your claim is truly legitimate and the insurance company denies it anyway, whether due to suspected fraud or a differing interpretation of your policy’s terms, you can appeal. It’s a time-consuming process that requires you to submit additional documentation, but it’ll pay off if the insurer reverses its decision.

If the company denies your appeal, you can hire an insurance attorney to press your case. They’re well-versed in insurance legalese and can craft arguments you wouldn’t even know to make. In the worst case, they can take your insurer to court.

Final Word

Filing a renters insurance claim could be easier than you think. The best renters insurance companies generally have online or app-based claims processes that let you submit and get approval for uncomplicated claims without ever meeting face-to-face with a claims adjuster.

Even if you have to welcome a claims adjuster into your apartment, it’s not the end of the world. If you’ve filed a police report, documented the damage or injuries, and kept good records of your expenses, your chances of getting a legitimate claim approved are quite good.

Sure, the process takes some time. But that’s a reasonable price to pay for avoiding a big hit to your bottom line.

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Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he’s not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.


What Is a Health Reimbursement Arrangement (HRA) and How Is It Used?

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Whether you work for a large employer or a small business, health reimbursement arrangements (HRAs) provide a tax-free way to cover medical costs. 

An HRA essentially gives you a stipend to reimburse you for health care costs like insurance premiums, copays, prescriptions, and over-the-counter drugs, relieving some financial pressure, making them one of the most critical benefits employees seek.

This guide details everything you need to know about health reimbursement arrangements, including how HRA plans work, how they’re different from health savings accounts and flexible spending accounts, and what you can do with the funds. 

What Is a Health Reimbursement Arrangement (HRA)?

Health reimbursement arrangements, sometimes called health reimbursement accounts, are employer-funded accounts that help employees and their covered dependents pay for out-of-pocket health care expenses. HRAs work in tandem with your employer-sponsored health insurance plan to reimburse things like your copays, deductibles, or prescription medication.

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An HRA plan is a valuable tool to pay for medical costs not covered by your health plan. It reimburses you with tax-free money provided by the employer as an employee benefit.

How an HRA Works

Imagine you have a sick child who needs prescription medication. The copay for the brand-name drug (with no generic available) gives you sticker shock. Suddenly, high out-of-pocket bills overwhelm your monthly budget, forcing you to make some financial adjustments.

Fortunately, you submit a reimbursement request on your HRA and receive a check for the amount you spent at the pharmacy.

Employers set up HRA programs to provide extra funds for qualified medical costs you, your spouse, or your dependents incur. Employers are the sole source of HRA funds; employees cannot contribute to their HRA.

Every year, the participating employer determines how much they will contribute to your HRA. The IRS requires that every employee have access to the same amount of HRA funds. Fortunately, unused account balances roll over to the following year.

Types of HRAs

There are three types of health reimbursement arrangements. Which type you have access to depends on your employer’s circumstances. 

Qualified Small Employer HRA (QSEHRA)

Small businesses employing fewer than 50 full-time workers can set up a qualified small-employer health reimbursement arrangement, also known as a small-business HRA. 

These businesses are exempt from providing employer-sponsored health insurance. So employees must get their insurance through the national or a state marketplace if their employer doesn’t offer one.

Funds in your small-business HRA can subsidize health insurance premiums or refund medical expenses you pay out of pocket.

The IRS limits how much your employer can contribute to a small-business HRA. The amount changes with every tax year. For example, in 2022, the IRS capped employers’ contributions to $5,450 for self-only employees and $11,050 for employees with a family.

Individual Coverage HRA (ICHRA)

Some employers don’t offer employee health insurance but are willing to provide a stipend to cover the premiums. The individual coverage HRA helps employees pay for health insurance if their employer has no employee health care plan.

Since January 2020, individual coverage HRAs have created a new way for small employers to distribute tax-free money for health insurance. As a result, you can use your HRA funds to buy health insurance coverage through the or state marketplace or directly from a private insurer. Previously, rules prohibited employees from using HRA funds to pay for individual health insurance premiums. 

If you’re 65 or older, you can use the individual HRA balance to cover Medicare Part A, Part B, and Part C (Medicare Advantage) premiums. If you are still working and on Medicare, your employer may require Medicare coverage verification each time you request reimbursement from the individual coverage HRA.

Group Coverage HRA (GCHRA)

High-deductible health plans (HDHPs) offer more significant savings to employers since the premiums are typically lower than traditional group health insurance plans. However, employees must pay medical bills in full until they meet the deductible, which is several thousand dollars.

So some employers offer a group coverage HRA in conjunction with HDHPs. Since HDHPs can have higher out-of-pocket expenses, the group coverage HRA helps close the gap between the high deductible and the employee’s medical needs.

HRA vs. HSA vs. FSA

In addition to HRAs, there are two other programs that complement health insurance plans: health savings accounts (HSAs) and flexible spending accounts (FSAs). Typically, they all work on a reimbursement basis, but some employers offer debit cards for direct access to funds.

HSAs are unique because the account goes with you after leaving an employer but can only work with HDHPs. Although it requires cash contributions, you control the money and can invest the HSA balance in stocks, bonds, and mutual funds.

FSAs are similar to HRAs. However, they’re known for use-it-or-lose-it rules (they don’t roll over each year), and employees can contribute through salary reduction.

HRAs, HSAs, and FSAs have some important differences that could affect which one’s right for you. Those include:

  • Who funds it
  • How much money can be added annually (individuals; families)
  • Whether the employee pays taxes
  • What type of health plans it works with
  • Whether you can use it to pay health insurance premiums
  • Whether unused funds roll over each year
  • What happens to the funds when you leave the employer (portability)

Comparing the differences between HRAs, HSAs, and FSAs, you can see that there are pros and cons to each. So if you have access to more than one and can only fund one, consider the benefits and drawbacks carefully before deciding.

Funding Source Employer Employer or worker Employer or worker
Annual Cap (2022) Unlimited on most $3,650; $7,300 $2,850
Employee Taxes  No No  No
Plan Type Any  HDHP Any
Premium Coverage Yes No Not usually
Rollover Yes Yes Sometimes
Portable No Yes No

Advantages & Disadvantages of HRAs

An HRA is a powerful tool to manage health care costs. Essentially, HRAs are free money for employees with great flexibility in how you choose to spend it. Plus, employers also win because they can deduct 100% of requested reimbursements from their taxes. 

But there are advantages and disadvantages you should consider carefully.


HRAs have plenty of advantages for employers, such as their tax-deductible status. But HRAs have robust benefits for employees too.

  1. Contributions Are Not Taxable as Employee Income. Employees don’t pay income taxes on the amount their employer provides in an HRA, lowering their taxable income.
  2. Withdrawals Are Tax-Free. Employees pay no income taxes when making withdrawals for qualified medical expenses. 
  3. The Balance Rolls Over Annually. Your HRA balance doesn’t expire, allowing you to use the rest in later years. So if your health was good last year, but you experience a new illness this year, your HRA surplus helps pay for unexpected doctor’s appointments, treatments, or hospitalization. 
  4. You Can Use HRA Money for Many Things. HRAs have the most comprehensive list of qualified medical expenses. That includes (but isn’t limited to) medical bills and dental and vision expenses.


Although HRAs are a boon to employee health care protection, they have limitations too.

  1. You Must Have Health Insurance to Use the HRA. If you opt out of buying health insurance coverage, you’re not eligible to use an HRA.
  2. Your Plan Determines Qualified Medical Expenses. Your company’s HRA plan may cover things that other companies’ plans don’t. Check with your HRA administrator for a list.
  3. You Lose HRA Funds if You Leave the Employer. If you separate from the employer, you lose all funds in your HRA account. So if you’re planning a change, exhaust your HRA funds before departing.
  4. Your Employer Determines the Contribution Amount. Some employers opt for lower-cost group plans that force the employee to shoulder more financial responsibility. If the HRA contribution amount is low, the health care program may not offer the employee much protection.
  5. Employees Cannot Contribute to their HRA. Unfortunately, you cannot contribute part of your paycheck to your own HRA. Only HSAs and FSAs permit employee funding.

Health Reimbursement Arrangement FAQs

HRAs are great supplements to health insurance, but you probably have more questions. These answers will clear things up.

What Health Care Expenses Do HRAs Cover?

HRAs cover various costs not usually covered by health insurance, like:

  • Routine doctor’s visits and copays
  • Medical bills, including hospital stays
  • Deductibles and coinsurance amounts
  • Hospital copays and expenses
  • Prescription medication
  • Over-the-counter medicine
  • Vision care (exams, glasses, contacts, and corrective surgery)
  • Diabetic supplies (testing kits and blood glucose monitors)

These are just a few of the circumstances HRAs can cover. Some plans also include:

  • Monthly premium payments toward health, vision, and long-term care insurance
  • Acupuncture and chiropractic treatments
  • Dental treatments and orthodontics (not premiums)
  • Speech therapy
  • Mental health care, such as talk therapy and alcoholic and drug addiction treatment
  • Weight loss programs
  • Service animal acquisition, care, and training

Since covered items vary among companies, check with your employer for more details about qualified medical expenses.

What Health Care Expenses Do HRAs Not Cover?

Essentially, HRAs only cover expenses directly related to treating a medical condition. 

For example, HRAs will not reimburse you for gym memberships, child care, cosmetic procedures, marriage counseling, feminine hygiene products, and funeral expenses.

What Happens to Unused HRA Funds at the End of the Year?

Fortunately, HRAs roll over funds from one year to the next if you don’t use them. So healthy people can save HRA funds for a catastrophic health emergency.

However, if you change companies, your HRA balance returns to your employer.

Can I Get an HRA if I Don’t Have Health Insurance?

No, you must have health insurance to get an HRA. Either enroll in the employer’s group health insurance plan or a marketplace policy to be eligible for HRA benefits.

Can I Cash Out an HRA?

No, you must use all HRA funds for qualified medical expenses. You can only access the HRA funds by submitting a reimbursement request to your HRA plan. If you leave your employer, they retain your HRA balance.

What Happens to an HRA When I Leave a Job?

Because your employer paid for 100% of your HRA contributions, the money stays with them if you leave your job. Find a way to use up the HRA balance if you plan to change employers.

Final Word

A health reimbursement arrangement is basically free money your employer gives you to spend on medical fees. The HRA funds are tax-free for you and tax-deductible for them. 

HSAs are straightforward to use with your health insurance plan. For example, suppose you visit the doctor, then receive a $100 invoice two weeks later. You would pay the bill, submit your payment to your HRA program, and they would reimburse you for $100. 

Another critical point is that the detailed list of covered expenses depends on your employer. Still, HRAs have the most generous reimbursement list of the three types of health accounts. 

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Alyce Meserve writes about personal finance, retirement, insurance, travel, making money, credit cards, and more. When she’s not sharing personal finance strategies, you can find her on a cruise or writing about one, hanging out with her American Eskimo Dog, Casper, taking a road trip, and playing video games. Reach her on Instagram @alyce.meserve.


What Is the Principal Amount of a Loan?

A personal loan can be a helpful financial tool when someone needs to borrow money to pay for things like home repairs, a wedding, or medical expenses, for example. The principal amount of a loan refers to how much money is borrowed and has to be paid back, aside from interest.

Keep reading for more insight into what the principal of a loan is and how it affects repayment.

Loan Principal Meaning

What is the principal of a loan? When someone takes out a loan, they are borrowing an amount of money, which is called “principal.” The principal on a loan represents the amount of money they borrowed and agreed to pay back. The interest on the loan is what they’ll pay in exchange for borrowing that money.

Does a Personal Loan Have a Principal Amount?

Yes, personal loans do come with a principal amount. Whenever a borrower makes a personal loan payment, the loan’s principal decreases incrementally until it is fully paid off.

Recommended: What Is a Personal Loan?

Loan Principal vs Loan Interest

The loan principal is different from interest. The principal represents the amount of money that was borrowed and must be paid back. The lender will charge interest in exchange for lending the borrower money. Payments made by the borrower are applied to both the principal and interest.

Along with the interest rate, a lender may also disclose the annual percentage rate (APR) charged on the loan, which includes any fees the lender might charge, such as an origination fee, and the interest. As the borrower makes more payments and makes progress paying off their loan principal amount, less of their payments will go towards interest and more will apply to the principal balance. This principal is referred to as amortization.

Recommended: What Is the Average Interest Rate on a Personal Loan?

Loan Principal and Taxes

Personal loans aren’t considered to be a form of income so the amount borrowed is not subject to taxes like investment earnings or wages are. The borrower won’t be required to report a personal loan on their income tax return, no matter who lent the money to them (bank, credit card, peer-to-peer lender, etc.).

Recommended: What Are the Common Uses for Personal Loans?

Loan Principal Repayment Penalties

As tempting as it can be to pay off a loan as quickly as possible to save money on interest payments, some lenders charge borrowers a prepayment penalty if they pay their personal loan off early. Not all charge a prepayment penalty. When shopping for a personal loan, it’s important to inquire about extra fees like this to have a true idea of what borrowing that money may cost.

The borrower’s personal loan agreement will state if they will need to pay a prepayment penalty for paying off their loan early. If a borrower finds that they are subject to a prepayment penalty, it can help to calculate if paying that fee would cost less than continuing to pay interest for the personal loan’s originally planned term.

How Can You Pay Down the Loan Principal Faster?

It’s understandable why some borrowers may want to pay down their loan principal faster than originally planned as it can save the borrower money on interest and lighten their monthly budget. Here are a few ways borrowers can pay down their loan principal faster.

Interest Payments

When a borrower pays down the principal on a loan, they reduce how much interest they need to pay. That means that each month as they make a new payment they reduce their principal and the interest they’ll owe in the future. As previously noted, paying down the principal faster can help the borrower pay less interest. Personal loan lenders allow borrowers to make extra payments or to make a larger monthly payment than planned. When doing this, it’s important that borrowers confirm that their extra payments are going towards the principal balance and not the interest. That way, their extra payments work towards paying down the principal and lowering the amount of interest they owe.

Shorten Loan Term

Refinancing a loan and choosing a shorter loan time can also make it easier to pay down a personal loan faster. Not to mention, if the borrower has a better credit score than when they applied for the original personal loan, they may be able to qualify for a lower interest rate which can make it easier to pay down their debt faster. Having a shorter loan term typically increases the monthly payment amount but can result in paying less interest over the life of the loan and paying off the debt faster.

Cheaper Payments

Refinancing to a new loan with a lower interest rate may reduce monthly loan payments, depending on the term of the new loan. With lower monthly scheduled payments, they may opt to pay extra toward the principal and possibly pay the loan in full before the end of the term.

Other Important Information on the Personal Loan Agreement

A personal loan agreement includes a lot of helpful information about the loan, such as the principal amount and how long the borrower has to pay their debt. The more information the borrower has about the loan, the more strategically they can plan to pay it off. Here’s a closer look at the information typically included in a personal loan agreement.

Loan Amount

An important thing to note on a personal loan agreement is the total amount the borrower is responsible for repaying.

Loan Maturity Date

A personal loan’s maturity date is the day the final loan payment is due.

Loan Interest Rates

The loan’s interest rate and APR should be listed on the personal loan agreement.

Monthly Loan Payments

The monthly loan payment amount will be listed on the personal loan agreement. Knowing how much they need to pay each month can make it easier for the borrower to budget accordingly.

The Takeaway

Understanding how a personal loan works can make it easier to pay one-off. To recap — What is the principal amount of a loan? The principal on a loan is the amount the consumer borrowed and needs to pay back.

Consumers looking for a personal loan may want to consider a SoFi Personal Loan. With competitive interest rates and a wide range of loan amounts available to qualified borrowers, there may be a personal loan option that works for your financial needs.

Learn more about SoFi Personal Loans today


What is the principal balance of a loan?

The principal balance of a loan is the amount originally borrowed that the borrower agrees to pay back.

Does the principal of the loan change?

The original loan principal does not change. The principal amount included in each monthly payment will change as the amortization period progresses. On an amortized loan, less principal than interest is paid in each monthly payment at the beginning of the loan and incrementally increases over the life of the loan.

How does loan principal work?

The loan principal represents the amount borrowed. Usually, this is done in monthly payments until the loan principal is fully repaid.

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