Home insurance is meant to protect a home from major catastrophes. Anything less than complete destruction and homeowners should do some math and determine if filing a claim is worthwhile.
Hopefully, this is something you’ve done long before an emergency hits. Determining what types of damage are worth filing a claim over can keep you from unnecessarily filing a claim and wasting money and time (and possibly increasing your insurance rates later!).
Know your deductible
Setting a high deductible will almost ensure that you don’t file claims that cost $1,000 or so more than the deductible. Why pay a $5,000 deductible for water damage to your bathroom that will cost $6,000 to repair?
A deductible, if you’re not familiar with the term, is the amount you pay to your insurer when filing a claim before coverage begins. It’s in addition to the premium you pay for coverage.
For example, $1,000 is the amount that large insurers typically require for a deductible. For a $10,000 roof repair, for example, you’d pay the deductible and the insurer would pay $9,000.
The bigger the deductible, the lower your premium. Home insurance deductibles range from $500 to $25,000, according to David Shaffer, an insurance agent in Walnut Creek, CA, in a post for United Policyholders. To avoid small claims, Shaffer recommends having a home insurance deductible of at least $5,000, which can save $1,500 a year on the premium compared to a $500 deductible.
Put that $1,500 savings aside each year and you’ve already got a good start to paying that deductible if something happens. Pocket that savings every year, and you can pay for small mishaps to your home out of your own pocket instead of filing a small claim.
Impacts of filing claims
The average homeowner files a home insurance claim every 10 years, Shaffer says. File more often than that and expect your insurance rates to rise at renewal time, possibly doubling.
If you file a number of claims in a year, or file large claims, your insurer may “nonrenew” your policy because you’re more of a risk. Before filing a claim, ask your insurance agent if it’s worth doing in the long run and get an idea of how it would affect your policy and rates.
Along with raising rates, insurance companies can limit coverage after certain types of damages are claimed, according to Zacks Investment Research. Claims that could increase a premium include water damage, dog bits or falls.
Claims that are unlikely to result in higher rates include weather-related problems or other catastrophes.
Having your insurance rates increased after filing a few claims can be better than not being renewed. Getting a new insurance carrier may be difficult if you’re dropped, and you may end up with inferior coverage at a higher cost for a few years with a new carrier, Shaffer says.
Every family has its own financial breaking point, but filing small claims for $1,000 over your deductible can be a poor decision. Less than that, and you should pay for the repairs yourself. For some people, $5,000 may be a better threshold.
Even if you’re trying to get a new insurance policy with a different insurer, don’t expect insurance companies to not know about past claims you file. Most insurance companies will look through a database of every claim ever filed by you through the Comprehensive Loss Underwriting Exchange, or CLUE. It will include the date and type of the loss, and the amount of the insurance settlement.
Personal property claims information generally stays on a CLUE report for five years after a loss is reported. Your insurer, however, will have a record of claims you’ve made with it for as long as you’ve been a policyholder with it.
Insurance claims made by previous owners of a home count against you if they haven’t been remedied. They may indicate that your home is likely to have more than one claim every 10 years, Shaffer writes.
How to file a claim
If you do decide to file an insurance claim, be sure to follow a few steps that the Insurance Information Institute recommends:
• Report a crime to police. If your home has been burglarized or vandalized, report it to police. A police report can help your insurer.
• Call. Call your insurance company and ask for help on filing a claim and if it will exceed your deductible.
• Fill out forms promptly. Your insurance company will send you claims forms to fill out. Return them as quickly as you can and make sure they’re filled out completely.
• Get an inspection. An insurance adjuster will inspect your home and property damage to determine how much it will pay for the loss.
• Make temporary repairs. After photographing or videotaping the damage, protect your property from further damage and don’t throw out damaged items until the adjustor has inspected your home.
• List damaged articles. Make a list of destroyed or damaged items, then make a copy for your adjuster. Provide receipts for these items if you have them.
• Keep receipts. If you have to move out of your home during repairs, keep receipts and records of additional expenses.