December 15th, 2017
True or false: When in doubt, file a homeowners insurance claim… While some people may believe a "might as well" approach is best, it can actually hurt your cause. Whether or not you should file a claim depends entirely on the amount and type of damage.
Keeping homeowners insurance rates reasonable involves shopping around for an appropriate policy and knowing when not to file a claim. After an accident, your first instinct may be to hop on the phone with your agent as soon as possible. That's understandable—seeing damage to your home can be extremely stressful, and you're likely wondering about your next move. But filing a claim is not a one-way ticket to financial absolution. Rather, homeowners insurance policies have specific terms and language dictating whether or not you'll receive compensation.
In some states, filing just one homeowners insurance claim can hike your premiums by 20 percent for years to come. Obviously, it's not ideal to pay higher premiums over a $1,000 claim you could have paid for yourself. In some situations, keeping your record clear is actually more beneficial than filing for a payout.
Homeowners, take heed: Here are some examples of when to steer clear on filing a claim.
If your policy doesn't cover the claim type
First thing's first, it's up to you to understand what your policy covers. Standard policies include some causes of loss (like fires, windstorms, and theft) but not others (earthquakes and flooding). Save everyone the hassle and avoid filing a claim for an uncovered event. If you're worried your policy doesn't protect you well enough, add a rider or find a new one altogether.
If the claim barely surpasses your deductible
Let's look at a concrete example in which it's not worthwhile to file a claim slightly higher than your deductible. Say you have a deductible of $500. A covered incident occurs in your home, causing $2,500 worth of damage. If you submit a claim and it hikes your premiums $500 annually for three years, you're paying $1,500 to recover $500. Plus, your claim will register in the Comprehensive Loss Underwriting Exchange database, possibly complicating future claims and coverage.
A good rule of thumb is to save your homeowners insurance claims for damages impossible to pay out of pocket. For example, one extensive house fire could render your home's structure and contents a total loss. Such a catastrophic event is a prime example of when homeowners insurance can literally save your finances.
If you very recently filed another claim
A consensus among underwriters appears to be that average homeowners file one claim per decade. Filing frequent claims is somewhat of a red flag for insurance companies, possibly even prompting them to drop risky policyholders. Filing subsequent small claims can jeopardize your protection. This is why it's savvier to file discerningly.
If your claim is really a substitute for home maintenance
Homeowners insurance policies do not cover run-of-the-mill maintenance. So, if you submit a claim based on damage resulting from failure to upkeep maintenance, it will likely be denied. Furthermore, if you skimp on home maintenance required by your carrier to prevent further loss, they may cancel your policy.
The best thing you can do is stay current on preventative home maintenance. Keep a close eye on plumbing, electrical, heating, and structural systems over time. Don't wait for disaster to strike before you intervene!
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