Home insurance premiums have been rising, and getting coverage can be tricky in what’s known as a “hard market”.
When extreme weather and catastrophic events put a lot of strain on the insurance industry, this is reflected in premiums and renewals. Insurance companies take fewer risks and raise their rates to keep up with the increase in claims, litigation, and the higher cost of materials.
Insurance is an investment you hope you’ll never have to use. You pay to protect yourself from unexpected events like theft, vandalism, liability, and natural disasters. If you experience a catastrophic event, you can file a claim to recover your losses. But what about minor events that fall right on the edge of the coverage line? They’re not disasters, but they’re not cheap either.
Not every circumstance requires filing a claim. Knowing when to file a claim with your home insurance can save you stress (and possibly money) in the long run.
Your Deductible
A deductible is the amount of money you must pay out of pocket before the insurance company begins to cover your claim. For example, imagine your roof is damaged during a storm. You file a claim, and the insurance company sends an adjuster to assess the damage. The adjuster values the loss at $10,000 for a partial roof replacement. Your insurance has a $1,000 deductible. You will need to pay the $1,000 upfront before the insurance company will pay the remaining $9,000.
Let’s continue with this example. Suppose you decide to replace your roof instead of repairing it. The roofer gives you a quote of $20,000 for a complete replacement. Your insurance company will only pay for the damaged portion of the roof. You would still have to pay the $1,000 deductible to the insurance company. Your insurance company would pay $9,000 for the damaged portion of the roof. You would be responsible for the remaining $10,000 to cover the undamaged portion.
Deductibles can vary depending on the policy, including the amount you chose when you signed your policy. A higher deductible can lower your annual premium, but you’ll have to pay more upfront if you file a claim. It’s important to consider how much your budget allows in terms of deductibles.
Deductibles will influence your decision to file a claim
There are some instances where you won’t have to pay a deductible when filing a claim:
Liability coverage protects you if you’re sued and found legally responsible for someone else’s injuries or property damage. This coverage typically doesn’t have a deductible applied to it.
Medical payments help you if a guest is injured on your property, regardless of who is at fault. Again, this type of coverage also usually doesn’t have a deductible. Some homeowners insurance policies offer medical payments of up to $5,000 without requiring an investigation.
Additional Living Expenses (ALE) protect you when you must temporarily leave your home while it is repaired or rebuilt due to a covered peril, such as a fire. ALE covers living expenses like hotel bills and meals. There is no deductible for ALE, but you will likely have to pay a deductible for the damage claim.
Sublimits and Deductibles
Sublimits are coverage limits for certain types of property or losses, such as tree debris removal. Sublimits are the maximum amount your insurer will pay for a specific peril, regardless of the deductible.
Let’s say a tree falls on your shed during a storm and destroys it. Your homeowners insurance covers the replacement of the shed up to 10% of your $300,000 policy, or $30,000. Your homeowners policy deductible is $2,000. Your policy also has a $3,000 sublimit for debris and tree removal, with a maximum of $1,500 per tree.
The result? Your insurer agrees to pay for the cost of replacing your shed, minus your $2,000 deductible. But they only pay $1,500 for tree debris removal.
Talk to your agent about the details of your coverage.
To file or not to file a claim?
Big-ticket items and disasters
Insurance is a lifeline if a catastrophe results in a loss far greater than you could comfortably afford out of pocket.
- In cases of serious damage or property loss that significantly exceed your deductible, filing a claim is the best course of action.
- A claim can also help with the legal fallout when liability issues arise, such as your dog biting someone or accidentally damaging someone else’s property.
Minor Incidents
Filing too many claims can make you appear risky. As a result, insurers are less likely to renew your policy. That’s why it’s vital to evaluate each situation independently and decide whether filing a claim is the best option.
Sometimes, filing a claim can backfire.
- If the cost of repairs is slightly above your deductible, consider paying it out of pocket. The potential premium increase after filing a claim could be much more expensive in the long run.
- Frequent claims for minor damage can also raise red flags. Occasional minor damage is part of homeownership. It’s crucial to understand that insurance is not a maintenance contract. Excessive use can result in higher premiums or even non-renewal of your policy.
- Insurers often offer discounts for a clean claim history. Filing a minor claim could cost you these benefits.
There’s no rule about when you can file a claim. Nor is there anything preventing you from doing so. Explore your options. If you have any doubts, call your agent before sending anything directly to the insurer. They will advise you and review your options with you.
What could lead to policy non-renewal?
Insurance companies look for reliability in their customers. Inconsistencies and risky behavior could lead to non-renewal:
Frequent claims: Filing multiple claims in a short period or shortly after purchasing a policy can raise red flags for insurers. You could start to appear as a high-risk customer.
Type of claims: If the claims are due to recklessness or negligence, such as common claims for damage caused by lack of maintenance, the insurer might consider you a high-risk customer.
Changes in your risk profile: Acquiring high-risk pets or an increase in crime in your neighborhood can influence your insurer’s decision.
Payment problems: Frequent late payments, missed payments, or bounced checks can make you a less attractive customer to insurers.
Home maintenance issues: Insurance companies use drones and satellite imagery to investigate claims. Some use this technology to detect maintenance issues on the property, such as deteriorating roofs or trees with overhanging branches. You could face non-renewal of your policy if your home shows signs of deterioration, even if you haven’t filed a claim.
Changes in your insurer’s risk tolerance: Occasionally, an insurance company decides to restructure its customer base because the market is too risky. This could result in your policy not being renewed. For example, an insurer might reduce coverage in regions prone to natural disasters.
If your insurer decides not to renew your policy, they must notify you in writing before it expires so you have time to explore other options. The non-renewal letter should include the specific reasons for the decision.
Work with your insurance agent
No one can guarantee the outcome at renewal time. Even people who have never filed a claim with their insurance company have had their renewal denied. Others have had several claims and maintained their coverage without issue.
Ultimately, you’ll have to decide what’s best for you. Your agent can help you analyze your options and make the best decisions.
