When to avoid making a homeowners insurance claim
Homeowners insurance provides essential protection against expensive damage to your home, but that doesn't mean you should file a claim every time something goes wrong.
In some cases, you might be better off if you handle the problem yourself.
Insurance companies have been accused of raising premiums, or even dropping policyholders, if they file too many claims or if they file the wrong kind of claim.
Consumer Reports, for example, states that "insurance companies are allergic to claims" and that even a single one can result in cancellation.
It also says that if you even talk to your insurance company about damage but don’t actually file a claim, it might still make a record of the damage in your insurance file, where it can be used in future coverage decisions by any insurer.
The magazine advises policyholders that even small claims can lead to increased rates, so they should avoid making claims for amounts not much higher than their deductibles.
Nolo (www.nolo.com), a respected source of plain-language legal advice, also advises against small claims and says that after filing more than two or three claims, "your rates will rise and your policy may be canceled."
Besides avoiding claims altogether, or at least avoiding small ones, the two types of claims consumers are most commonly told to avoid are water damage claims and dog bite claims.
Water damage claims are not only costly, they also raise fears of future mold claims that will be even more costly. Dog bite claims are both common and expensive.
Others, however, tell a completely different story.
In "The Claim Game: A Homeowners Guide to Surviving an Insurance Catastrophe," Andrew Wallingford, an insurance adjuster with more than 13 years of experience, writes, "Your homeowners premiums will not go up because you file a claim. You will not be canceled because you file a single claim. ... Simply using your insurance when you need it is not grounds for cancellation."
He states that "the answer as to whether or not to file a claim is always YES."
According to Wallingford, "Insurance companies are more than willing to allow the silly and untrue myths of inevitable cancellation and instantly rising premiums to proliferate and penetrate the consciousness of every homeowner in the hopes of preventing claims from being filed."
Whom should you believe?
Given this conflicting advice, how do you know what to do when you experience a covered loss?
Unless you happen to work in the claims department of the very insurance company that writes your homeowners policy, you probably have no way of knowing what will happen when you report the loss.
Consider finding the middle ground between the extremes of filing every possible claim and avoiding claims at almost any cost:
- Choose a high deductible to save money on premiums. Set aside the money you save to help pay for any losses.
- Pay out of pocket to fix problems you can comfortably afford to fix, especially if the repair cost is not much higher than your deductible.
- Don’t hesitate to file a claim for a major loss. If you experience a disaster like a fire or a severe hail storm, or any other loss that will become magnified if you don’t fix it promptly and that you can’t afford to fix yourself, use your insurance.
Otherwise, there’s no point in having it.