Last week I explained why our home insurance rates increase even without filing a claim. This week, I would like to explain when you should, shouldn’t and what happens when you do file a claim.
When we do file a claim, we expect our rates to go up unless it’s a wind or hail claim (act of god). I know, we pay a lot of money for our insurance premiums and it’s hard not to file a claim every time we need it, but you must understand the repercussions if you do. Most insurance companies will not raise your rates for a wind or hail claim, but that may be changing. Currently, the claims that will cause an increase in rates are losses from fires, damage from broken or leaky pipes, theft, vandalism and loss of jewelry etc.
I want to warn you about filing these kinds of claims. Every insurance company will surcharge you for filing this type of claim. That surcharge will be about a 15-20% increase in your home insurance for the next 3-5 years. 2 claims like this in 3-5 years and it’s a 30-40% increase. If you file 3 of these types of claims within 3-5 years, you will be cancelled and have to buy insurance from a “risk” company at about 3-5 times your old rate. Let me give you a scenario. Your current home insurance rate is $1000 per year and you have a $1000 deductible. You have a claim, let’s say, water damage from the line to your refrigerator’s ice maker springs a leak. It damages your wood floor and will cost $3000 to repair. The repair is $3000, you have a $1000 deductible, and your insurance company will pay $2000. You’ve only filed the one claim, so your home insurance because of the claim will increase $200 per year for the next 3 years for a total of $600. This makes your cost of the claim $1600 and puts you in jeopardy of having a bigger increase if there is another claim. You can also forget about shopping for cheaper insurance. Most companies will not take you until 3-5 years after the date of this claim and if they do accept your home insurance, you’re not going to get their best rates.
You can reduce your risk of a surcharge of your rates by weighing the cost of the claim over the repair cost. In the example above, the claim was $3000, your deductible and your increase and premium cost you $1600 over the 3 years, so your net amount on the claim was $1400. It may have been worth it to you to file the claim. Now, if the amount of the repair was only $1800. I would recommend not filing the claim because you would only net out $200. When my clients call and want to file the claim, we ask what happened and the extent of the damage. If it’s a claim like the above, we explain the repercussions and suggest they get an estimate for the repair before filing the claim. This way you don’t get put into the position of filing a claim that will only benefit you by $200-$500.
I did have one older gentleman as a client who had a $50 deductible on his car. He scraped the bumper on a pole. Damage was $85 (yes, this was a few years back), he insisted on filing a claim which I strongly urged him not to. This was considered an at-fault accident. It cost him about $300 with the increase in his rates plus his $50 deductible and the insurance company only paid $35. This is a perfect situation where my client would have been better off just paying for the repairs himself or just living with the scrape.
If you are not sure if it’s worth it, get your repair quotes together and call me (or your agent) and we can talk about the risks and the benefits. I’m always available to be a resource for you, your family or friends!