How to Decide Whether to File a Homeowner’s Insurance Claim

July 15, 2019 | Blog

Just because you have homeowner’s insurance doesn’t mean you should pick up the phone to make a claim every time you’re left with damages to repair.  It sounds a bit bizarre because that’s why you purchase home insurance, right?  Sure, you want to be covered in the event of a loss on your home, but there are some things you will want to consider before making that call.  We understand that damage, sudden loss, and liability are difficult circumstances to deal with, so we are going over things you need to know and think about when you’re making those decisions.

Pay Attention to Your Deductible

  • Knowing your insurance policy will be extremely helpful when it comes to making decisions about a claim. The first thing you need to consider is if the cost to fix the problem is more than the cost of your deductible.  Remember, your deductible is what you are required to pay out of your pocket before insurance will pay their portion.  If your deductible is higher than what it will cost to make repairs or replace a damaged item, then it may be better to pay those expenses on your own and not file a claim.
  • Whenever you file a claim you run the risk of your annual premium going up. In fact, David Shaffer, an insurance expert affiliated with United Policyholders Group, suggests to “not claim the small stuff” and to use home insurance only for major losses.  He recommends setting your deductible to $5,000 and to not claim anything below that amount.  He offers other insights and recommendations here.
  • If you do decide to move forward with a claim, you may be able to take advantage of a loss-free or claims-free credit. Not all insurance carriers offer this discount and you do have to qualify.  It is typically available to those who have not made a claim in the last 3 to 5 years.  Once you make a claim you will likely not be eligible again for the credit discount.

Possible Rate Increases

  • Anytime you file a claim there is a chance that your premium rates will increase when your policy comes up for its annual renewal. There are factors that determine these hikes including the cause of the claim, if you have previous claims in the last few years, the cost of the claim, and your current state of residence.  When deciding whether to make a claim you should take a possible rate increase into consideration.  Unless it is a substantial loss, it may make more sense, in the long run, to pay for damages yourself.
  • It is also important to note that your history of any and all claims you have ever made will be included in a database called CLUE (Comprehensive Loss Underwriting Exchange). All insurance companies have access to this database and can view your insurance claims history to determine premium rates and whether they will choose to insure your home.  A history of several claims in a short period of time can mean higher premiums or an inability to find a company that will insure you.

Risks of Losing Insurance

  • Making multiple claims over a period of two to three years can put you at risk of being denied renewal of your insurance policy. Insurers are all different and there are typically no specific rules in a contract designating whether a provider can choose to renew your policy.  If you do get dropped then your previous claims may make it difficult to obtain insurance with a new provider and the chances are high that you will be paying more on your premium.
  • Dropping a policy and choosing not to renew a policy are two different scenarios. Insurance companies cannot cancel your policy more than 60 days after it was purchased.  The only way they can cancel early is if there is a failure to pay premiums, fraud, significant altering of the home, or if the home is not occupied.  When your policy comes up for annual renewal your insurer can decide due to claims made that they no longer want to take on the risk of insuring your home and can then choose not to renew.

Can I Cancel A Claim?

  • Once you have filed an insurance claim it can only be canceled if no money related to the loss has been paid out. Be sure to contact your insurance agency and provide your name, insurance number, and the explanation of why you will be canceling your claim.  Ask what you will need to do to finalize the cancellation including submitting any needed paperwork.  Document your conversation and be sure to write down dates, times, and to whom you spoke with.
  • Most likely a file will be kept on record of the cancellation. It should not affect your home insurance rates when it comes to renewing your policy because your payout will be recorded as zero.

Making an insurance claim can be a big decision and you want to know the possible effects of those choices.  The better you know and understand your insurance policy the better off you will be.  Being prepared with a plan and having an emergency fund ready will also make a difference.  Your insurance agent is another great resource when you have questions or concerns about filing a claim.

Related Blog Posts:

What is a Deductible? How Does it Work?

How Do I Know if my Insurance Really Has Me Covered?

How Do I File a Home Owner’s Insurance Claim?

How Long Do I Have to File a Homeowners Insurance Claim?

Recoverable or Non-recoverable Policy. Know the Difference.

Let’s Talk Deductibles.  What Are They?  What Kind of Deductible Do I Have?  Should I Make Changes?

Additional Resources & References:

https://www.insurance.com/home-and-renters-insurance/filing-a-homeowners-insurance-claim.html

https://www.valuepenguin.com/filing-homeowners-insurance-claims

https://www.forbes.com/sites/capitalone/2018/03/29/what-you-need-to-know-about-filing-a-homeowners-insurance-claim/#77ec3ef56443

https://www.uphelp.org/pubs/claim-or-not-claim%E2%80%A6that-question-david-shaffer

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