When to Make a Homeowners Insurance Claim: A Comprehensive Guide
Filing a homeowners insurance claim is a critical decision that requires careful consideration. While insurance is designed to protect you financially in times of need, not every incident warrants a claim. Understanding when to file can save you money, preserve your claims history, and ensure you’re making the most of your coverage.
Assessing the Situation
Before filing a claim, it’s crucial to evaluate the extent of the damage and your policy details. Start by reviewing your policy, paying close attention to your deductible and coverage limits. Your deductible is the amount you’re responsible for paying before your insurance kicks in, and it plays a significant role in determining whether to file a claim. A higher deductible can lower your annual premium cost, but also means you’re on the hook for more money if you do need to file a claim.
When to File a Claim
Major Damage. If your home suffers extensive damage from events like fires, severe storms, or other covered perils, filing a claim is often necessary. These situations typically result in costs that far exceed your deductible and may require significant repairs or temporary housing.
Liability Issues. If someone is injured on your property and you’re potentially liable, it’s wise to file a claim. Your insurance can provide legal defense and cover settlements if necessary.
Theft or Vandalism. Substantial losses due to theft or vandalism often justify a claim, especially if valuable items are stolen or if repairs are costly.
Natural Disasters. In the event of a natural disaster covered by your policy, such as a hurricane or earthquake (with appropriate coverage), filing a claim is usually advisable due to the potential for extensive damage.
When to Reconsider Filing
Minor Damage. If the cost to repair damage is close to or less than your deductible, it’s often more economical to pay out of pocket. For instance, if you have a $1,000 deductible and the damage is estimated at $1,200, the claim payout would only be $200 and probably not worth the effort.
Recent Claims History. If you’ve filed multiple claims in recent years, adding another might put you at risk of increased premiums or even policy non-renewal. Insurance companies may view frequent claims as a sign of higher risk.
Preventable Issues. Damage resulting from lack of maintenance or neglect is typically not covered and could lead to claim denial. For example, a roof leak that you’ve ignored for months might not even be eligible for coverage.
Considerations Before Filing
Before you file a claim, here are some things to consider.
Impact on Premiums. Filing a claim may lead to increased premiums. While a single claim may not significantly affect your rates, multiple claims over a short period could result in substantial increases or difficulty obtaining coverage in the future.
Claims-Free Discounts. Many insurers offer discounts for policyholders who haven’t filed claims for a certain period. Filing a claim could negate these discounts, potentially costing you more in the long run than paying for minor repairs out of pocket.
Claim Severity. The nature and severity of the claim matter. Claims related to water damage, mold, or dog bites might have a more significant impact on your insurability and future premiums compared to claims for storm damage.
Policy Limits and Exclusions. Before filing, ensure the damage is covered under your policy. Standard policies often exclude damage from floods, earthquakes, and certain other perils. Additionally, be aware of your policy limits to avoid surprises during the claims process.
Preparing to File Your Claim
Before you even consider filing a claim, take photos and videos of the damage immediately. You’ll need these to support your claim. Then, get professional estimates for repairs to understand the potential claim amount. If you worked with an agent to obtain your policy, you should discuss your potential claim with that person, first.
Homeowners insurance provides crucial financial protection, but it’s not always necessary or beneficial to file a claim. By carefully assessing each situation, understanding your policy, and considering the long-term implications, you can make informed decisions that protect both your home and your financial interests. Remember, insurance is a tool for significant losses, not a maintenance plan for your home.
This column is prepared by Rick Brooks, CFA®, CFP®. Brooks is director/investment management with Blankinship & Foster, LLC, a wealth advisory firm specializing in financial planning and investment management for people preparing for retirement. Brooks can be reached at (858) 755-5166, or by email at rbrooks@bfadvisors.com.
Category: Finances, Local News, National News
