Owning a homeowners insurance contract gives you the assurance that everything's covered. If something goes wrong, you can call the given number and file a claim. Or if you have questions about property damage and whether your policy covers it, the claims rep can set you straight.
Hold it right there. Before you get the insurance company involved, you need to know something very important about claims. Every time you contact your insurance company regarding a covered condition, the question may be recorded as a claim.
If for some reason the insurance company does not pay for the damage, it is still recorded as a claim. If for some reason you decide to pay for the damages yourself (such as when the cost of repairs is very close to your deductible), it is still recorded on your file as a claim.
If you have a bad year or two and make several claims on your policy, the insurance company might decide to cancel the policy. Even if they only pay for one of the claims, having as few as three "claims" in a few years can increase your premiums, and may possibly throw your policy into a tailspin.
This is not standard procedure for all insurance companies, but most will make a note of claims reported in your file. That information helps them (and possible future insurers) determine what sort of risk you or your property will be. For instance, if you report water damage to the insurance company, they'll make a note because your home may have suffered other, more serious effects from the water damage.
Because insurance companies share information (via a database called the Comprehensive Loss Underwriting Exchange, or CLUE), you can trip yourself up by filing claims too often, even if the claims are not on the same property. You may also have difficulty obtaining insurance on a home whose previous owners filed too many claims in a short amount of time.
How much is too much?
A good rule of thumb for making claims is to avoid filing for damages under $1,000. If your deductible is set for $1,000, it doesn't make sense to file, but even with a $500 deductible it will probably be worth paying the damages out of pocket. Where you draw the line is up to you.
It might help to know that when you make a claim, the insurance company may surcharge your premiums. That means you'll be paying them back a little at a time for the damage they covered. Perhaps you won't be paying back the full amount, and there are exceptions when your premium will not be affected by a claim.
Those exceptions vary by company, but generally speaking, one claim for a catastrophe (such as a hail storm or a tornado) will not affect your premiums or your policy. Some insurance companies sell policies with "accident forgiveness" clauses, which means they forgive your first at-fault auto accident. They'll pay for covered damages and your coverage and premiums remain the same as though the accident didn't happen. Many states have laws that protect the insured from being canceled for coverage in certain situations.
Insurance companies don't like a lot of small, frivolous claims. Any claim that involves your lack of attention, or could have been prevented by proper maintenance, is almost sure to raise your premium. For instance, if your laundry room flooded because the drain hose was old and fell apart, that was technically your fault for not paying better attention. Even theft can raise an insurance underwriter's eyebrows. Perhaps that neighborhood isn't safe, making the house a higher risk.
So how do you know when you are justified to make a claim? You know you are pretty safe to make a claim if a hail storm damages your roof. But let's say you have a tree that drops a limb on your roof and causes damage. There was no wind storm; the tree has rot and should have been cut down. The damage looks bad, and if it rains you'll have water damage as well. It looks expensive.
Get a quote first
Before you call your insurance company, call a contractor for a quote.
If you have time (throw a tarp on that roof!), get several quotes. Now you can make a better decision. The damage looked expensive, and it is, but if you have a $1,000 deductible on your home insurance policy and the repairs will cost $1,200, it makes sense to pay for the damages yourself.
But if the damages are more than you can handle, you have 30 days to make a claim, time in which you can evaluate the damages and your financial situation. If you can handle paying the damages, it is better to keep the insurance company out of it.
Your agent might be able to answer your questions without making any note in the file. Independent agents - those who represent many companies - will have more freedom to keep your claims questions off the record. An agent who works exclusively for one company (like State Farm or Allstate) may be required to report your questions. There are always exceptions, so ask.
This is one good reason to get to know what your policy covers, along with all of the exclusions and conditions, before anything happens. Talk to your agent about how claims will affect your premiums, and how that particular company has operated in the past. Ask friends and neighbors about their experiences - just keep in mind that no insurance company takes on the role of a benefactor.
There are situations when you should contact your agent or insurance company, no matter what the cost. For instance, it's always best to report an accident or incident when you might need to make use of the liability portion of your policy. Did your dog bite a neighbor? Was a car accident involving someone else your fault, or did it require a police report? You will need the insurance company on your side.
If for some reason you have to make several claims and your insurance company cancels your policy, you can obtain insurance through a state-run insurance pool. It's not an enviable position - you'll likely pay more for less coverage.
Avoid filing claims
A better plan is to do everything you can to avoid filing claims:
- Be consistent with home repairs. It is always less expensive to pay for preventative measures than to repair damage from neglect.
- When buying a new home, ask for a thorough inspection, or hire your own inspector. Pay for a CLUE report on the home to find out how many, or if any claims have been filed on that home in the past ten years.
- Keep accidents-waiting-to-happen out of your life. This could be aggressive dogs, swimming pools without privacy fences, letting neighbor kids jump on your trampoline (worse - with no side guards), or porch steps with no railings. Take care of any problem with your property that could be seen as a risk.
- Read your policy thoroughly before you pick up the phone to ask about a claim.
Feeling a bit disillusioned with the way insurance companies operate? It helps to understand that insurance is all about taking educated risks. You can't risk going without coverage for major incidents. Insurance companies have complicated criteria for what kind of and how much risk they will take.
You take a risk that your policy will cover you when you need it, and that you won't have many reasons to file a claim. Once you know that insurance companies want the odds to be in their favor while also providing a service to their clients, you can modify your current policy or your actions accordingly. If you aren't able to meet your needs with current insurance company, you can always compare insurance rates and switch if need be.
