To Claim or Not to Claim – A Homeowners Guide
You have a legitimate issue and you can’t decide whether or not it’s worth making a claim on your homeowners insurance. There are two major consequences that homeowners worry about when filing a claim:
- Your insurance premium will go up
- Your insurance carrier can choose not to renew your policy or can cancel it outright
There’s a lot of truth and half-truths about these statements, so here’s a little background to help you weed through all the facts to make a decision.
What makes your homeowners insurance premium go up?
There are several items that go into determining your premium to begin with, but here, we only talk about some important factors that make your premium go up. Unlike car insurance, the premium you pay for homeowners insurance has more to do with where you live. Underwriters account for the following, and these weigh the bulk of your insurance premium:
- Potential risk in your neighborhood
- Type of home
- Natural disasters in your area
- Amount of coverage you buy
If your premium goes up, it could be a direct result of a claim you filed in that year . . . or not. Statistics do show that homeowners who file a claim once are more than likely to file a claim a second and third time. As such, one thing insurance companies do is adjust the premium to make up for potential future risk. They are more concerned with the amount of claims you’ve made in a given period.
When your premium increases, it’s more than likely because insurance companies raise premiums in bulk for a specific region–and they can only do this once a year. However, back to the frequency of claims, if you’ve filed a claim theft claim six months ago, a water drainage claim three years ago, and now considering filing a claim on bathroom water damage, it is highly likely that your insurance premium will go up.
Also, a simple inquiry to the insurance company about a specific damage to your home may trigger a red flag and indicate that a loss occurred, making your property appear to be a bigger risk. They can raise your rate at renewal even if you never filed a claim, or if you filed one that was denied. When speaking with your insurer, always be clear as to whether or not you are making a formal claim or if you are just inquiring about whether or not a specific damage is covered by your policy.
To Claim or Not to Claim
The part you’ve been waiting for–here are the questions you should consider when deciding to file a claim:
- What is your deductible? Are your repairs or losses less that your deductible? If so, you may want to second think filing a claim. When you file a claim, it goes on record, even if your claim is denied. In this case where your repair or loss is lower than your deductible, you won’t receive any payouts; it’s more logical to take a loss.
- Are your damages relatively minor? If so, you may want to consider just eating your cost. If your payout is only slightly above your deductible, it won’t be worth the increase of premium over time. Talk to an independent insurance agent to discuss how if this payout is worth the potential increase in premium. Some insurance advisers suggest that anything under $5,000 is not worth the claim.
- How many times have you filed a claim on your home? Have you claimed more than once in the last 10 years? If you have a history of filing claims, there can be a point where you are simply no longer insurable.
- Is the damage or loss due to poor maintenance on your part? The best way to avoid filing a claim is to prevent potential damage or loss. Do whatever it takes to maintain your home. If you file a claim and your insurance deems negligence on your part, they could very well deny your claim.
When it gets too complex, don’t hesitate to speak with an independent insurance agent. They can help guide you through the decision making process.