Now, the expected answer is to always say, yes, you should call the insurer and file the claim. However, that may not always be what’s best in your specific situation.
So rather than just give you the easy answer, we’re going to spend a little time going through the tradeoffs you make when you file a claim.
Save Me Time!
- Filing a claim for a loss may not always be in your best interest depending on the circumstances.
- There are three things to consider: Does your policy actually cover the loss? How much will it pay after limits and deductibles? How may it affect your future cost and availability of insurance?
- If you are concerned about filing smaller claims, one solution is to carry a higher deductible.
The Rest of the Story
Let’s say one thing upfront to avoid any confusion. You shouldn’t worry about what the insurance company wants you to do (or not do). You should focus solely on what’s in your best interest and that will be our emphasis in this article.
There are three main things you should ask yourself when deciding whether to file a claim:
- Will this be covered?
- How much will insurance pay?
- What’s the downside?
Will This Be Covered?
The first thing you need to figure out is whether your damage to your home is covered by insurance or not. If you are not sure, you can check out our resources or ask your insurance company directly.
The most common source of confusion is water damage which may or may not be covered. Another area of uncertainty tends to revolve around preventable losses that could have been avoided through basic maintenance.
Obviously, if damage isn’t covered, then there is nothing more to do. Sometimes, there will be a gray area where, by the letter of the contract, a loss isn’t covered, but sometimes the insurer will pay anyway.
If you decide to file a claim and hope for the best, you should take into consideration the issues below to decide if there is enough benefit to be worthwhile
If the damage clearly is covered, there is a good chance that you will want to file the claim, but it is still worth considering the remaining topics below before deciding for sure.
How Much Will Insurance Pay?
There’s two things you need to take into consideration here: what’s your deductible and are there any limits on coverage in the policy (or policy discounts you may lose)?
Your deductible matters because, if your loss is $1,100 but your deductible is $1,000, insurance is only paying you $100. In that case, make sure to read the next section to decide if $100 is worthwhile or not.
So before you call the insurance company to file a claim, make sure you are aware of a) your estimate of the cost of repairs and b) your deductible to understand what your expected recovery is.
Note, it is important to look at all deductibles in your policy. In addition to your base deductible, you may have a wind or storm deductible. Additionally, there are some covered losses where the deductible does not apply or may be waived.
The other thing you need to understand is your coverage limits and benefits. Some types of damage may restrict payment to $1,500 or $2,500, even if your actual losses are far higher.
You also should check whether you are benefiting from clauses like a claims free discount. If you file the claim, you will lose that which acts as a de facto price increase and could be worth more than your insurance recovery.
What’s the Downside?
So if you know your damage is a) covered by your policy and b) greater than your deductible, is it a slam dunk to file a claim? Not necessarily. You most likely will want to file, but there are a couple things you’ll want to consider.
Will my rates go up?
One thing people ask a lot when looking for advice on whether to file a claim is “will my rates go up?”. It’s a fair question because, yes, sometimes they do.
Then again, sometimes, they don’t and it can be difficult to guess. Even your insurance agent most of the time won’t be able to definitively tell you whether a claim will lead to a rate increase.
However, we know that it is possible and there are times where you may save some money in the long run by not filing. If you are someone who is concerned about this, the best option for you may be to raise your deductible.
Why? Because if you don’t think you will file a smaller claim, then you can save money on your premium with a higher deductible and you will still pay the same amount when you have a small loss.
Let’s do a brief example:
If you have a $1,000 deductible and a $2,000 loss, you may be worried your premium will go up, let’s say by $200 and, thus, in five years, you will have paid back the $1000 claims payment so it’s “not worth it”.
What if you had a $2,000 deductible instead? Your premium might have been perhaps $100 lower! So, yes, you will still pay the same $2,000 as when you had the $1,000 deductible (but didn’t file the claim) but you will have saved $100 a year in premium in the meantime.
One other benefit of that higher deductible is it will preserve policy benefits such as a claims free discount.
Just remember, not every claim will lead to a price increase and you may have been too cautious by not filing that claim unless…
Will I get cancelled?
You may run into the second problem we alluded to which is a claim makes it more likely the insurance company will cancel your policy. Now, most reputable insurers won’t cancel you over one claim, but there is a greater chance they will cancel you after a second claim.
Obviously, you can’t get to a second claim, if you don’t have a first claim! Which is why it may not be worth filing that first small claim because, if you have a more serious claim later, you will need your insurance to pay, and you shouldn’t be worrying about whether you’ll get cancelled for it.
Now, before anyone panics, two claims doesn’t mean you are getting cancelled. It just makes it more likely. It doesn’t mean that it is likely.
So you shouldn’t eat the cost of a small claim just because you’re worried about a future event that may or may not ever happen and may not get you cancelled if it does.
However, it would be disingenuous of us to hide the fact that insurers do use multiple claims as a factor when deciding whether to cancel someone.
Again, the easiest way to take this risk off the table is to carry a higher deductible so you don’t have to worry about these issues and you save money in the interim on your premium.
Need More Help?
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