Insurance helps homeowners have peace of mind, knowing that their homes are protected from perils. Unfortunately, a common misconception is that homeowners insurance protects a home no matter what. What many homeowners fail to realize is that insurance doesn’t work that way.
Filing a claim isn’t as simple as saying, “This happened to me, now pay me back.” Your insurance company may deny your claim, and in most instances, they may even raise your premium rates. That’s why it’s critical to think twice about filing a claim.
Why shouldn’t you file insurance claims?
Don’t be a frequent filer. If you file a lot of claims, you will likely have to pay a higher rate. And if you file too many claims over a short period of time, chances are, your insurance company will not renew your homeowners insurance policy.
If you frequently file claims, your insurance company will consider you as high-risk. For instance, if you file a claim for property damage this month, and then file the same claim next month, your insurer will deem your home as dangerous.
Essentially, if the disaster has struck more than once, what will prevent it from happening again? Your insurance company is simply looking out for themselves, hence, the higher premiums.
When should you avoid filing a home insurance claim?
While your homeowners insurance policy protects your property and possessions, it isn’t a lifeline that you should take advantage of. You should be careful when it comes to filing insurance claims, as submitting too many may result in higher premiums. In the end, filing an insurance claim may end up costing you.
Here are six times when you might want to think twice about filing an insurance claim:
#1 When your policy doesn’t cover the claim
Save yourself the time and trouble of filing a claim for an uncovered peril. This is why it’s important to understand what your homeowners insurance policy covers. Standard policies cover loss and damage due to natural disasters such as fires and storms, however, they rarely include floods and earthquakes. If your insurance policy doesn’t cover the peril, you may want to purchase additional coverage.
If you’ve hired a property management company, you can request them to determine your property’s coverage needs.
#2 When your claim isn’t that much
Just because you can file a claim doesn’t mean you should. If your claim recovers an insignificant amount of money (say, a couple of hundred dollars), it makes more sense to pay out-of-pocket instead. Let’s take a look at an example:
Say your laptop (valued at $1,000) got stolen, so you file an insurance claim with a deductible of $500. While your insurance company will cover the cost to replace your laptop, you will have to pay the $500 out-of-pocket. So, essentially, you recover only $500.
If you’re thinking, “At least I saved $500”, that’s not quite true. Your premiums will increase for the next three years or so, which means you’ll end up paying more. And, regardless of the amount involved in the claim, it will be recorded in the Comprehensive Loss Underwriting Exchange (CLUE) database. All of the insurers across the U.S. will know about the claim, putting you at risk of being denied in case you apply for a new insurance policy.
#3 When the accident was avoidable
Your homeowners insurance company isn’t here to cover up your mess. If you file a claim for something avoidable, your insurer may deny your insurance claim. If they do approve your claim, you will still have to pay higher premiums.
For example, if you file a claim after a break-in, even if it could’ve been avoided if you had just installed an alarm system, you’ll be able to recover the costs of your stolen items. The downside, however, is that your claim will be recorded in the CLUE database — a red flag for insurers everywhere. On top of that, you’ll have to pay higher premiums.
To avoid filing an insurance claim (and to reduce your premiums), try keeping your home as secure as possible. Install security cameras, motion detectors, burglar alarms, and so on.
#4 When you are responsible
Your insurance policy won’t cover damage caused by your negligence. For instance, if your home was damaged due to the lack of maintenance, your insurer will likely deny your claim. Even if it is denied, it will still show up on the CLUE database.
Additionally, if your insurance company sees that you aren’t capable of maintaining a home, they can increase your premiums. A single-family property management firm can help with your home’s upkeep so that you don’t have to file frivolous claims.
#5 When you recently file a claim
The average homeowner files one insurance claim every ten years. This is because homeowners understand that filing frequent claims can damage their “reputation” among insurance companies. Hence, if possible, avoid filing frequent claims — especially when it involves minor incidents. If you can cover the costs of repairs or replacement using your savings, it would be wise not to file.
#6 If your insurance agent advises you not to file
It’s a good idea to have an insurance agent whom you can consult before filing a claim. This person shouldn’t be from your insurance company, but instead, they should be a private insurer or a real estate professional. Consulting them regarding claims can save you the trouble of filing claims that will only raise your premiums.
If you’ve hired a property management company, they likely have in-house investment consultants who can advise you regarding the claims process.
The Bottom Line
Just because you have homeowners insurance doesn’t mean you should file as many claims as you want. Filing too many claims can result in higher premium rates or even the cancellation of your insurance policy.
Hiring a property management firm such as Luxury Property Care can help you navigate the complexities of the claims process. Our property managers have decades’ worth of experience in the real estate industry, helping clients across South Florida protect and insure their properties.