Pros and Cons of Making a Homeowner’s Insurance Claim
Figuring out whether to file a homeowner’s insurance claim can be a challenge. After all, you pay for coverage to help you after an incident, so putting it to use seems wise. However, there are risks for filing, and some of them can cost you big. With that in mind, here are some of the pros and cons of making a homeowner’s insurance claim.
Pro: Less Out of Pocket with Homeowners Claim
The biggest benefit of filing a homeowner’s insurance claim is the money you don’t have to pay out of pocket. Aside from your deductible, your insurer covers the cost of eligible repairs, ensuring your home is restored to its original condition.
For example, if your deductible is $1,000 and you need $3,000 to get everything fixed, your insurance would contribute $2,000 toward the work. That’s a pretty substantial savings and can make filing a claim seem like a worthwhile venture.
However, this should never be your only consideration.
Con: Savings May Be Minimal
Depending on the size of your deductible, the amount your insurance covers may be very minimal. While, in the above example, your insurer contributes an amount that may make filing worthwhile, that doesn’t always happen.
If you have a $1,000 deductible and the cost of repairs is $1,050, your insurance is only chipping in $50. While that is $50 you don’t personally have to pay, that doesn’t mean you should automatically file a claim.
Depending on how much time and energy it takes, that $50 savings may translate into hours or additional work on your part. If your insurance company requires mountains of forms and pictures, several phone calls to keep things moving, or a myriad of extra steps, securing that $50 may feel like a pretty big hassle.
Usually, if the amount covered is that small, filing a claim simply isn’t worth it.
Pro: Repairs and Replacements When You Don’t Have Cash
If you don’t have an emergency fund large enough to cover the cost of repairs or to replace items, filing a claim could make it affordable. As long as you can cover the deductible, your insurer will cover the rest according to your policy.
This can be incredibly beneficial when repairs are must-dos. For example, damage to your roof leaves at least a portion of your home exposed to the elements. Left unattended, this results in more damage over time, particularly if water makes its way inside.
If you delay repairs, the cost of getting everything fixed only goes up. By acting fast, you can save yourself a substantial amount over the long run.
Similarly, if major appliances no longer work after the event, you may be able to afford replacements with the help of your coverage. However, this may somewhat depend on your policy, as some compensate you for the value of the appliance as it was while other insurers provide you with enough to purchase a new one at today’s prices.
Con: Your Premium May Shift
When you file a claim, your risk profile changes, even if it’s your first claim ever. As a result, your insurance company may assign a surcharge to your premium during your next renewal, ensuring compensation for what they perceive as increased risk.
If you’ve filed claims within the past three to five years, your odds of seeing your costs go up increase dramatically. At times, the difference in the cost may offset any savings you get from filing. For example, if you have a $1,000 deductible and $2,500 in damage, your insurer would cover the difference of $1,500.
However, if you’ve made two claims in the past three years (even if they are for different kinds of issues and different amounts), your premium could more than double. If your current premium is around $1,100 (just over the average), that would mean paying $2,200 a year or more after you file this next claim. In only 17 months, the $1,500 you saved by filing is overtaken by the premium increase.
Even in cases where the cause of the claim is unavoidable, such as a hurricane or wildfire, that doesn’t mean your premium isn’t going up. In this case, if the insurer decides your entire region is riskier to cover, everyone’s premiums rise during their next renewal. Plus, if you also have multiple claims within the past few years, your increase may be even bigger than the standard for your area.
Con: Loss of Claims Free Discount
Even if your premium doesn’t go up, that doesn’t mean your bill doesn’t change. Some insurers offer “claims free” or “loss free” discounts to policyholders who haven’t filed a claim during a specific period, such as the past three years.
By filing a claim, you are no longer eligible for these kinds of discounts, so you will pay more for your insurance as a result.
Con: Risk of Coverage Cancellation
In some cases, repeated claims or significant claims relating to negligence may lead an insurer to cancel your coverage. Often, this occurs if they consider maintaining your policy too risky, even with a potential premium increase.
Additionally, you may have trouble securing new insurance. Claims records are accessible by other companies, so other insurers may see you as too risky as well and refuse to offer you a policy.
When Should You File a Homeowner’s Insurance Claim?
Homeowner’s insurance is meant for big events, not small ones. If you’re turning in claims for only a few thousand dollars of work, especially if you do so repeatedly, you might be setting yourself up for a premium increase.
This is especially true for claims that fall into the liability category. Theft and vandalism claims may suggest you aren’t doing your part to protect your home, making a premium increase more likely.
The same goes for water damage resulting from a lack of home maintenance, such as an old pipe bursting, or negligence, such as forgetting to turn the water in the bathtub off. Fire damage caused by poor maintenance of negligence is usually treated that way too.
Ideally, if the claim is relatively small and you can shoulder the cost, then you might want to bypass using your insurance entirely. In fact, you might not want to call them at all, as discussing the incident (even if you don’t file) with them could have repercussions.
It’s important to understand that there is practically no way to guarantee how an insurer will react to you filing a claim. In Rhode Island and Texas, insurance companies aren’t legally allowed to increase your premium after your first claim, reducing the level of risk.
However, a slew of states allow increases or policy cancellations for making only one claim, and some don’t prevent increases even if all you do is call to ask questions about possibly making a claim, regardless of whether you choose to file.
But, if the damage could get worse over time or a portion of your house is unusable without repairs, and you genuinely can’t afford it without insurance, you may not have a choice but to file. In these cases, consider it a lesson and start building a more robust emergency fund. That way, if there is another incident in the next few years, you are ready to cover it with cash.
Have you ever thought twice about making a homeowner’s insurance claim? Tell us about it in the comments below.