Homeowners Insurance – When Should You File a Claim?

Published by Bob Gustafson

Should you file a Homeowners Insurance Claim?

This is the third post in our series on “Homeowners Insurance, What You Need to Know”.

Not everything that happens to or in your home, or on your property, needs to send you running to your home insurance company to file a claim. It can be far smarter to not sweat the small stuff when it comes to filing claims, saving that step for when something truly catastrophic happens. Here’s why:

We buy insurance to cover what we can’t afford to lose. The big stuff. Total or near total damage to your home, the loss of irreplaceable belongings. The really big stuff.

If you were to file a home insurance claim for something relatively minor, thinking “We have home insurance for just this reason” when you’re stressed over minor damage to your home, you could lose your good customer credit and standing with your insurance company.

You could also lose your insurance policy with your current carrier and wind up with sub-par insurance, putting you in a terrible position for financial loss when and if the day comes that your home does suffer catastrophic damage.

According to the insurance companies, the typical homeowner has one claim every ten to fifteen years. These are usually the customers the insurance companies like. Unfortunately, the insurance companies don’t really like those who make more than one claim in this time frame.

Get the highest possible deductible you can afford

One thing homeowners should consider is taking the biggest deductible that your insurance company allows and you can afford. A higher deductible will save you money on your annual policy. Therefore, what you save because of the higher deductible will, over time, cover the costs of small repairs.

Some insurance companies don’t offer deductibles higher than $1000. If that’s the case with your insurance provider, find one that does offer at least a $2500 deductible. Depending on your financial situation, some insurance companies offer deductibles of up to $25,000.

How to decide if you should file a homeowners insurance claim

Keep in mind that every claim can trigger a premium increase so really use discretion when you consider filing a claim. If your home or property does suffer major damage, you should file a claim with your insurance company

Before you file a claim, first make sure you have the coverage for the claim. If you don’t have coverage for hurricane or flood damage, you shouldn’t file a claim. In addition, if your situation meets any of the following criteria, think long and hard before you file that claim.

The costs to replace or repair the damage won’t exceed your deductible

If you are sure the repair or replacement costs will be less than your deductible, you should never make a claim. Not only will you not get any money from the insurance company, the claim will still go on your record and may put you in a higher risk category, possibly resulting in higher insurance policy costs.

Every time you file a claim, whether it’s paid, denied or pays out nothing due to the deductible, it goes on your record in the Comprehensive Loss Underwriting Exchange (CLUE). This database includes all the insurance claims that you have made in the last seven years.

When you are looking to purchase a homeowners insurance policy, insurance providers check this database first before deciding whether they will insure you and how much you will be charged.

The claim is not your first in a short period of time

Filing multiple claims gets the attention of your insurance carrier. If you have filed multiple claims in the last 10 years, you may get hit with premium increases. More than one or two claims in three years puts you in the high risk category and you may not be able to renew your insurance with your current carrier. Each insurer has a different guideline for how many claims push you into the higher rates or cancellation brackets.

The amount that the claim would pay you is relatively minor

Even if your claim does exceed your deductible, you should consider not filing if you can afford the repairs on your own. The less you raise your visibility with the insurance companies, the better.

You do yourself a disservice by filing a small claim. Change how you view your homeowners insurance. Understand that:

  • A well maintained homes get better premiums. Reduce the likelihood of damage due to unforeseen accidents like burst hot water heaters, broken water hoses on washing machines or roof leaks from hidden roof damage by routinely inspecting and maintaining your home.
  • A higher deductible allows you to save over all the years you own the home and don’t file a claim.
  • Your homeowner’s insurance is there to cover major losses.

So when a minor damage occurs, stop and take a breath before you launch right into filing a home insurance claim. Decide if it’s worth the risk to file for smaller amounts. Don’t let your emotions rule you, and talk to your financial advisor about potential movements in your home insurance coverage.

Understanding which occurrences would warrant a claim and which could be smarter to just handle on your own can be a very smart discussion to have with your financial advisor before anything happens to your home.

Rookie mistakes in filing claims can be costly. Listen to our podcast for more information, and contact us with any questions you might have about when, and when not, to file a home insurance claim.