In 2017, only 6% of insured homeowners filed a home insurance claim. You may be wondering, “Why are we all paying these monthly premiums if no one’s cashing in?”
The answer is simple: it’s not always a good idea. Home insurance coverage is designed to protect your financial security in the event that your personal property is catastrophically damaged. Damage that racks up a bill of a few thousand dollars or less is probably not worth filing a claim over.
That being said, making the decision to file a homeowners insurance claim really comes down to your specific insurance plan. If you’re asking, “Should I file a home insurance claim or not?” you’ve come to the right place.
Read on to find out more about navigating your home insurance plan and knowing if and when you should file a claim.
Table of Contents
Knowing Your Home Insurance Plan
First thing’s first: you need to understand your home insurance plan. What is your deductible and does filing a claim entail significantly higher premiums? What does your insurance company cover? Do I have a covered claim?
We’ll break down these issues and more below.
Understanding Your Deductible
The deductible is what you have to pay out of pocket before your insurance kicks in. Note that you are not paying towards your deductible unless you file a claim with your home insurance.
Let’s look at an example. Say your deductible is $500. This means that, in the event of damaged or stolen property, you will need to pay $500 of your own money for recovery or repairs and your insurance will cover the rest.
Watching Those Premiums
Premiums are not to be confused with your deductible. Your insurance premium is the monthly bill you pay to retain your home insurance. While you may never end up paying toward your deductible at all, you will always have to pay your premium if you want to stay on your current insurance plan.
Your premium is one of the at-risk factors to take into account before filing an insurance claim. When you file an insurance claim, it indicates that you are more of a liability to the insurance company than you were before. As a result, your claim history may raise your monthly insurance premium since no claims discounts are removed and also insurance companies may surcharge policy due to claim and for any potential losses, they may face in the future.
Listing Covered Damage
Home insurance may seem a bit vague. Does that mean it covers your home? What about the belongings in your home?
A simplified look at home insurance reveals that it does, in fact, cover your home and your personal property. The real question is, under what circumstances are those things covered? Many insurance companies base their plans around the standard Insurance Services Office HO-3 policy and we’ll unpack what this policy contains.
Standard insurance plans protect your belongings in the event of a natural disaster, including things like lightning, windstorms, hail, heavy snowfall, and even volcanic eruption. Some unnatural disasters, such as house fires and damage caused by electrical currents, also fall into the covered damage category. Theft and vandalism also tend to make this list.
Note that there are a lot of common sources of damage that most insurance plans do not cover, like water, earth movement, infestations, mold, and neglect. In other words, if you have extensive and costly water damage, you may not get coverage at all. We’ll talk a bit more about this issue later on.
Understanding Your Duty After a Loss
Most property insurance policies contain duties that the insured must comply with to recover under the policy. They vary from policy to policy, but we’ll cover the basics of what most insurance companies expect.
Generally, the insured must provide notice of the damage to the insurer shortly after the damage occurs. They must take appropriate actions to protect the property from further damage. They may also have to appear under oath for an examination of the incident.
How To Choose the Right Home Insurance Policy
Before you sign up for a new insurance policy, you need to take into account everything we’ve just listed as well as your own budget.
The first thing to assess is the value of your property. How much did you pay for your home? How much would it cost to replace the personal possessions you keep in your home?
In other words, how much money would you lose if you lost your home and everything in it? The more your home and personal property is worth, the more you will be paying for your home insurance policy.
The other thing to take into account is your current budget. Keep in mind that your premium is a new monthly bill and it is imperative that you can comfortably and reliably pay it.
On top of that, you should think about how much you can afford to pay out of pocket in the event that your property is damaged. Let’s say the deductible is $1,000. Can you pay $1,000 out of pocket before your insurance kicks in, or do you need a policy with a lower deductible?
Talk to an insurance agent to start building the right plan for you. Tell your agent what you need and how much you can pay and they will provide you with homeowners insurance quotes for the best plans for you.
So, Should I File a Home Insurance Claim or Not?
Now that you know more about how home insurance works and have gathered the necessary information about your own plan, it’s time to discuss whether or not you should file a claim. Ultimately, you want to file a claim if the damages are well above your deductible, you can afford the higher premium, and you haven’t filed many claims in the past. In other words, save your insurance claims for the major stuff.
Now, we’ll look at some of the most common scenarios a homeowner may face in which they might consider filing a claim–and probably shouldn’t.
The Damage Is Not Insurance Covered
This one is pretty simple. To understand why this would be an issue, let’s talk a bit about the process of filing a home insurance claim process.
Assuming the damage wasn’t caused by a vandal or thief, the first step is to call your insurance company and file the claim. An insurance agent will assign a claim number to your case and send out an insurance adjuster who will assess the damage.
The next step is to start documenting everything, from the extent of the damage to the bills you’ve already paid for emergency repairs. You may even feel the need to hire your own insurance adjuster to counter the assessment made by the insurance company’s adjuster.
Basically, there is a lot of paperwork to deal with when you file a claim, even before you’re dealing with an adjuster. If you attempt to file a claim for damage that isn’t covered by your policy, your insurance company is going to realize what is happening at some point, and all of that work will have been for nothing.
You Recently Filed a Different Claim
Even if you can afford to pay higher premiums on your insurance policy, you should still hesitate before filing multiple claims in a short period of time. If you file too many claims in the span of three to five years, your insurance company can choose to “non-renew” your policy. In other words, they can drop you as a policyholder because you are considered high risk.
Believe it or not, your claims activities under one insurance company will follow you if you apply for a new insurance plan with a different company. This is because of something called the Comprehensive Loss Underwriting Exchange, or CLUE. CLUE is a database that documents insurance policyholders’ claims including the date, type of damage, and amount of coverage paid out by the insurance company.
Note that your CLUE report will also affect your ability to willingly leave one insurance company for another. Say you end up with higher premiums due to previous claims and want to start fresh with a new insurance company. Even though you weren’t pushed out of your previous policy, other insurance companies will still find your CLUE report before signing with you.
Your Claim Doesn’t Surpass Your Deductible or Barely Does
You should never file a claim unless the repair or replacement cost exceeds your deductible. However, if it only exceeds your deductible by a few hundred or even a few thousand dollars, you may want to sit down and calculate future costs first.
Let’s look at an example. Say that your deductible is $1,000 and your repair costs are $2,000. Now, let’s say that your insurance rate will increase by $500 a year due to the claim you’ve filed.
That means that in the first year after filing a claim, you will only have saved yourself $500. By year two, you won’t have saved yourself any money at all. Although it may lengthen the amount of time you have to pay off this money, it is not worth it within only three years.
You should operate by the same rules even if your insurance policy includes any kind of first-claim forgiveness. Even if your premiums won’t go up (or won’t go up by much) after that first claim, you will still want to wait it out unless and until you’re dealing with something catastrophic.
You’re Paying for Routine Maintenance
Bear in mind that, as a homeowner, it is your responsibility to keep up with routine maintenance. This includes fixes and renovations relating to plumbing, electrical wiring, roofing, siding, and more. When you fail to keep up with damage or deterioration it is considered neglect, and your insurance company will likely deny your claim.
There are grey areas in regards to filing a claim to cover maintenance-related costs. For example, imagine that your roof has had weak or worrisome spots for a year or so. Shingles are loose, a few are missing, and there’s a spot in your roof that even appears to be leaking.
Now, imagine that a severe windstorm hits your town, causing several more of your shingles and some of the interior roofing to get ripped off. Your roofing issue has escalated to an emergency (and a rather expensive one at that). Can you file a claim, given that wind damage is covered by your insurance policy?
The answer is that it could depend on the maintenance agreements in your insurance policy. Most insurance companies require their policyholders to practice routine maintenance on several major structural components of their homes in order to qualify for insurance. This often includes the roof.
Because the major damage was caused by a windstorm, your insurance adjuster may advise the insurance company to approve your claim. However, the insurance adjuster may find evidence that the roof was in a weakened state prior to the windstorm and rule that the major damage would not have occurred if it weren’t for your neglect. In that case, you would not only receive a claim denial but you may even get kicked off of your insurance plan.
Finding the Right Insurance Company
We hope we’ve solved the riddle of, “Should I file a home insurance claim or not?” Before we wrap up, let’s talk a bit about finding the right insurance company.
At LoPriore, we believe that each insurance policy should be custom-made to suit our policyholders’ needs and budgets. After all, no two homes are alike!
If you are looking for home insurance in Massachusetts, contact us today. Our insurance agents look forward to discussing the best ways to protect your home, wallet, and future.
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To learn more about how homeowners insurance can protect your business, get in touch with the independent agents at LoPriore today. Our experienced insurance agents are available 24/7 to answer your questions, provide information about our home insurance policies, or provide you with an instant quote.