When not to file a claim with your homeowners insurance
When unexpected damage befalls on your home, it can be startling and cause you to panic a little. Many people make the mistake of calling their insurance company right away to file a claim, before really assessing the damage fully. This can be a costly mistake.
It's a simple matter of math:
Deciding whether or not to file a claim with your homeowners insurance is actually a simple matter of math. Is the cost to fix the damage more than your deductible? Most homeowner’s deductibles rest in the $1,000 range. It’s obvious that paying out of pocket for repairs when they’re less than your deductible is the best approach. The equation gets a little more complex when repair costs are greater than your deductible.
Get quotes before all else:
First, it’s a good idea to get a quote or estimate from the appropriate contractor or service person to determine realistic reparation costs. Sometimes people think something is going to be a very expensive fix and therefore file a claim, when in reality it’s a cheap fix. Do not skip this very practical step.
Next, you must determine if filing a claim is worth it. Hypothetically let’s say the damage is $2,000 and your deductible is $1,000. If you file a claim, your repairs will be covered at the cost of your deductible. However, that’s not the only cost. There can be long lasting repercussions any time you file a claim with your insurance company. Typically after filing a claim, your rates will increase upon renewal anywhere from 20-40% for the next 3-5 years.
Here’s the math with an average annual premium of $750 and a $1,000 deductible:
Original Rate: $750x5 years=$3750 total premium with no claims
New Rate: 750x1.4x5 years=$5250 total premium including increase after filing a claim
$5250-$3750=$1500 Additional premium from claim
Assuming that after filing a claim, your rate will increase by 40% for the next 5 years, you’ll end up paying an additional $1,500 in premiums. So, if that damage to your home was $2,000 and you pay the $1,000 deductible to have it fixed, you’ll also pay an extra $1,500 in premiums over the next 5 years. Total cost to fix the damage to your home is $2,500 when the actual damage was only $2,000.
At first this equation may seem a little confusing or like too much to think about, but it’s absolutely worth crunching the numbers first before filing a claim. The best thing to do would be to talk to your insurance agent and find out what is the best option for your specific situation. Your agent can help you make an educated decision about filing a claim that will be most fiscally beneficial to you.
Don't file a claim if it's less than $2,000:
As a general rule of thumb, if damage is less than $2,000 we recommend not filing a claim. If it’s $2,500 or over, we usually advise that you file a claim. But if the claim involves someone else – such as a liability or medical claim – always file it.
Get a CLUE:
Another factor that may help you determine if filing a homeowners claim is the best solution is knowing about CLUE. CLUE (also known as a claims history report) is like CARFAQ for your home. The report shows all claims made on the house within the past 5 years. If you’re thinking about selling your house soon, buyers can request this report from you and if they see multiple claims on it, it may discourage buyers.
We’re not discouraging anyone from filing a claim with their insurance company, that’s what you’re paying for and why it’s there. What we are encouraging is making an educated decision with all of the facts and numbers before filing a claim so you know what will be best for your specific scenario.
If you have questions about our math, your homeowners policy, or anything else contact your agent.