You pay for homeowners insurance so you can protect yourself if something should happen to your house or property. However, there are times when you’d be better off paying for repairs or replacements out of your own pocket.
Although you aren’t required to insure your home you’ll have a hard time coming up with rational reasons not to.
In a perfect world, people with insurance could file claims whenever something damages, or something is stolen from, their house.
Sadly, that’s not how things currently work. Yes, people can file home insurance claims whenever they feel the need. Those who do so regularly, though, are likely to see their rates increase or even their policies canceled.
“Every claim can trigger a premium increase. So the ‘I paid for this insurance [and] I’m going to use it’ approach may not be the best one,” says Emily Cabral, program coordinator at United Policyholders in San Francisco.
The consequences related to filing ill-advised claims or too many claims don’t end with sky-high premiums or rescinded coverage. One example: those who lose coverage often struggle to find affordable policies elsewhere.
Homeowners in this kind of situation wind up with policies that “may not be fully adequate to pay all [the] costs of rebuilding following a catastrophic loss,” says David Shaffer, owner of David Shaffer Insurance Services.
Still, if your home's damaged, Cabral says “the first thing you want to do, after you make sure everyone is safe, is file a claim with your insurance company.”
Aside from those extreme scenarios, though, what can you do to avoid a claims-related rate hike or worse? Or when should you think twice before calling your insurer about a loss?
Most experts recommend refraining from filing a homeowners insurance claim if:
This may be the biggest no-no related to filing a home insurance claim. That’s because you’re filing a claim you (should) know the insurer isn’t going to pay.
Take the following example, from Addison Gardner, an Edmond, Oklahoma-based insurance agent and broker. Say you have a $1,000 deductible. Someone breaks into your house and takes your iPad and your wallet. Since it would cost you less than $1,000 to replace those items, you shouldn’t file a claim. That's because it would pay out nothing in the end. Plus, it would add a "theft" claim to your claims report.
“You’re better off just taking the loss and replacing it on your own,” Gardner advises.
Cabral makes a similar recommendation if you're sure repair or replacement costs will be less than your deductible. Because if they are, “you won't recover a dime from your insurance company. But the claim will still go on your record and may put you in a higher risk category,” she explains. As a result, “you’ll have to pay more for insurance, even if you didn't collect any benefits.”
That these kinds of claims waste your home insurance company’s time isn’t the only reason to avoid filing them. Another is that when you file a claim it’s noted in the Comprehensive Loss Underwriting Exchange, or CLUE. This happens even if the claim is denied or pays out nothing.
Nearly all carriers check this database before deciding whether or not to insure you and how much to charge you. That's because CLUE includes information about all of the claims a person has made in the last seven years.
So, if you file a claim that will be added to your CLUE file, make it be for something major.
Is your homeowners deductible too high or too low? Compare home insurance quotes to find out how changing your homeowners deductible can lower your premium.
What does “minor” mean in this instance? A Consumer’s Guide to Home Insurance says means the costs you want covered are “not much more than your deductible.”
That advice squares with what David Bakke has learned over the years. “If your claim is small and not much more than your deductible, it's not worth it to file a claim,” says the insurance expert with MoneyCrashers.com.
Cabra added, "If the damage is less than a few hundred dollars above your deductible, pay it out of pocket."
“Yes, it's unfair to be penalized for using the insurance you've paid for,” she adds. “But because most states allow insurers to freely penalize their customers for filing claims, it’s up to you to protect yourself. Some states do limit the amount an insurer can surcharge you after a claim, but not all.”
Other experts are more aggressive about what replacement or repair amounts that shouldn’t result in an insurance claim.
Former adjuster Jonathan Stein recently told houselogic.com that most homeowners claims for less than $3,000 aren’t worth reporting. (For claims related to water damage, he raises his minimum to $10,000. Mainly because some insurers will cancel your policy when it’s up for renewal due to concerns about mold.)
Gardner and others say you’d be better off paying for related repair or replacement costs out of your own pocket rather than filing a claim.
Kevin Foley suggests that first you should figure out what it’ll cost to repair any damage to your home. If the price tag is less than your deductible, “fix it yourself.” And if it’s just over your deductible? “Still, I would try to fix it myself,” says the agent with PFT&K Insurance Brokers in Milltown, New Jersey. “It's when the cost of repair is too high to handle, that’s when I would file a claim.”
The moral of the story here, he adds, is “if you're going to use your insurance, make sure it counts.”
Adds Shaffer (via To Claim or Not To Claim…That is the question), “consumers must … wake up to the fact that, for now, and until legislation or voluntary action changes things, we should simply ‘not claim the small stuff.’” Instead, people need to look at home insurance policies “as a consumer product to cover major losses.”
As suggested earlier, filing claims on any sort of regular basis will provoke a negative reaction from your insurer.
How many is too many when it comes to filing homeowners insurance claims? Some say filing one weather-related and one non-weather-related claim in a certain window of time is OK. Anything beyond that, though, and your policy may be in peril. Others, like Foley, say filing a couple of claims in a short amount of time could catch your insurer’s attention. “Generally, insurance companies will cancel your insurance if you have two claims in three years,” he shares.
In other words, think long and hard before filing more than one homeowners claim every few years. And of course, always evaluate whether or not it's the right time or situation to file a claim.
That certainly gels with what Gardner has to say about the subject. “People who rush to file claims any time they have damages to their property” are doing themselves harm, “even if it is done innocently.” Doing so “can completely ruin your claims history and make you uninsurable.” Plus, he adds, it “won’t get you the desired outcome you want in some cases.”
Every insurer has a different threshold for the number of claims that push them to raise rates or cancel policies. That's why it’s important to compare homeowners quotes. It’ll help you keep your premium low and maintain your coverage.
Click here to find out just how much those claims are costing you.
Which is another way of saying you shouldn’t put off repairing your damaged roof or replacing your rotting fence. This is especially true if you’re hoping your homeowners policy will cover those costs after a windstorm finishes the job.
Why should you stay on top of this sort of thing? First, it keeps you from filing frivolous insurance claims. Second, it positively impacts your homeowners premiums. (Well-maintained houses often are cheaper to insure than those that aren’t.)
Lindsey Douglass reminds that there “is a duty to mitigate future damages by protecting the property after a loss.”
“If the insurance company pays to repair or replace damaged property,” adds the chief claims officer for The Disaster Advocates Inc. in Houston, “it must be done before making another claim for the same items.”
You don’t want to file a claim for something you know won’t exceed your policy’s deductible. And you also don’t want to file a claim for something you (should) know your insurer won’t cover.
Ignoring that advice won’t bring you much joy. Your insurance provider won’t reimburse your repair or replacement costs, for starters. Also, it’ll still add the claim to your record. Which means you could see a rate hike or even a policy cancelation.
How are you supposed to know if your home insurance company will or won’t cover a particular claim?
Reading through your policy is a good place to start. While you do so, pay attention to the section that covers “exclusions.” This is where you’ll find information related to what your policy doesn’t or won’t cover. Look at the “declarations” section too. That’s where you’ll learn about your policy’s coverage limits.
If you’re still unsure whether your insurer will cover your claim, ask a contractor, a private adjuster, or your agent. You might even want to contact all three.
If you have a renter's insurance policy, there may also be different guidelines regarding your coverage. Be sure to look over your policy carefully, whether it's a homeowners or renters insurance one.
Gardner agrees with the suggestion to contact your agent. “The best thing to do if you are unsure if something is or isn’t covered is to call your agent.” They “can look through your policy and usually can also call claims themselves without having to actually file a claim for you to get you an answer.”
Adds Douglass: “Since policies are written in language that's complicated, it's important to have someone on your side that's experienced in interpreting policy language and identifying damage covered under the policy.”
Consider asking your agent, “how much will my rate go up if I file one, two, or more claims?” Also, “does it matter how far apart these claims are filed?” If you do, “be sure to write down the answers and keep them with your insurance policy for future reference,” Cabral says.
Foley supports involving your agent. But he's “met agents who take the position that calls about potential claims should be treated as a claim. They take that position because they never want to be accused of not reporting a claim. So, if you're calling to just ask a question, be clear about that.”
Bakke similarly advises being careful about spilling the beans to an agent or anyone else your insurer employs. “Get your information from a second party whenever possible,” he says. That could mean talking with friends or family members who have worked in the industry. Or it might mean calling the Office of Insurance Regulation for your state. “It's unlikely that the company would actually start a claim” thanks to the conversation you have with your agent, “but something could be added to your record.”
Another second party you may want to contact: a private adjuster. Gardner, for one, says this can be a good idea if you’re not sure you should file a claim or even if you’ve already filed one. In the second situation, involving a private adjuster lets you “double-check the insurance company’s claim value.”
Whatever you do, he says, don’t begin by picking up the phone and calling your insurer’s claims department. After all, “they are trained to start a claim. No matter what. You cannot simply call and ask them questions.”
Thankfully, Gardner adds, “you’ll be well taken care of in that arena” if you “make sure you have a good agent on your side.”
A: Actually, you can file a claim whenever you feel it’s needed. If you do that too frequently, though, your insurance company may penalize you for it. That could mean it’ll raise your premium, or it could mean it’ll cancel your policy. That's why most people try to limit how often they file insurance claims for home repair or replacement costs.
A: No. Don’t file a claim in this case. Not only won’t your insurance company pay you anything, but it will add the claim to your file. As a result, it might use that information to hike your rates – or worse – down the road.
A: It’s up to you. But most agents and experts will tell you not to involve your insurance company here. If you do, it won’t pay you much. And your insurer could use the claim against you when it reviews your rates. Instead, hold off on filing claims until the payout is larger. Some say to wait until the payout is $3,000 or more. Others say to wait until it’s above $10,000, although this suggestion usually is tied to water damage. In the end, though, it’s up to you to decide when to file a claim or not.
A: In general, filing three claims within five years isn’t a good idea. Many insurers have canceled policies in similar situations. Others have raised the rates of similar policyholders. As a result, if you think you can cover the repair costs yourself, you may want to do that. Also, consider calling a private adjuster. They may be able to help you figure out if you should file a claim or not.
A: That likely isn’t going to be the best idea. You just admitted the fence has been rotting for some time. The insurance company probably is going to think of that as a maintenance issue. In other words, you should have taken care of it long ago. Because you didn’t, the fence rotted to the point that it fell over. Most experts will tell you to pay for its replacement out of your own pocket. If you do file a claim, prepare for your insurer to deny it.
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