Home Insurance: Is Filing A Claim Worth It?

Homeowners insurance offers essential financial protection in the event of disaster. It can pay to rebuild your home, replace personal property, or cover medical care if someone’s injured in your home. It’s not, however, meant for household maintenance. While certain claims are as unavoidable as natural disasters, you should understand potential rate increases before you file for small amounts—it might be better to pay out of pocket.

How Much Does Insurance Go Up After a Claim?

The premium increase depends on multiple factors, including the size and type of claim, how many you’ve filed in recent years, and where you live. Studies have shown that rate increases can range from 6 to 40 percent, reflective of the scale of the claim. (As such, fire, hail, lightning, and water damage claims often see the highest rate increases.)

Even a small liability or property damage claim every five years or so can cause your insurance cost to increase; subsequent claims can push it up further. This is because a claim—or several—indicates to insurers that you’ll be a higher risk for them to cover.

Additionally, insurers are secretive about how they determine rate increases, and every company has a different process. Companies can refuse to renew a policyholder ’s plan because of multiple claims in a short period of time, and some will increase your rate if you even inquire about filing a claim.

Read your homeowners insurance policy closely, and be sure you understand it well ahead of any possible disasters. Call your insurer to ask questions if necessary!

How Long Will a P remium Increase Last?

Typically, insurance companies keep claims on your record for five to seven years, which means higher home insurance premiums during that period of time. Claims within the last three years will affect you the most. Again, make sure you understand your policy and ask your home insurance company about how long claims stay on file.

If you think you can switch companies to avoid a premium hike after a homeowners insurance claim, think again. Because of CLUE (the Comprehensive Loss Underwriting Exchange ), switching insurers within a five-year window likely won’t prevent an increase, because your claims history is visible to all companies for that period of time.

CLUE also keeps a database of claims on each home, so if owners before you filed multiple claims, your rate might be affected. To learn if prior owners filed a claim in the last five years, contact LexisNexis for a copy of your home’s CLUE Report. Get a copy online, call 1 (888) 497-0011, or email consumer.documents@lexisnexis.com.

Is Filing a Claim Worth It?

Save the claims for big, catastrophic losses beyond your control —something like a fire or a burst pipe that flooded two levels of your home while you were on vacation. To work in your benefit, the payout needs to outweigh the long-term cost of the rate increase.

If the claim is smaller than your deductible, definitely pay out of pocket to avoid a possible increase and a claim on your file. For example, pay for that broken window on your own. Even if costs or repairs go beyond the deductible, it could be worth paying out of pocket. Let’s say you have multiple broken windows that will cost $1,500 to repair and your deductible is $1,000. It’s likely better to pay on your own because the rate increase resulting from the claim might well cost more than $500 overtime.

Don’t file claims resulting from maintenance issues, like not keeping your roof, plumbing, or deck in good shape.

Higher-deductible plans—up to $5,000 or so—can help you save money if you have enough savings to cover damages up to that amount. Your monthly premium will be lower, and you’ll be deterred from submitting small claims that impact your record and rates.

Are There Types of Claims that W on’t Cause a Rate Hike?

Because insurance is regulated at the state level, the answer to this depends on where you live. Most states have consumer protections that prevent rate increases for things like claim inquiries, claims that don’t result in reimbursement, single claims, or even severe weather. Your state’s department of insurance can give you a full list of your insurance protections, so give them a call or check out their website.

Besides Claims, What Else Causes a P remium Increase?

Quite a few things, actually: the age of your home (and especially its roof), “risky” household features like swimming pools, certain dog breeds, an increase in severe weather in your area, the real estate market, local construction costs, and your credit.

Your insurer may send people to your home every few years to evaluate potential risks and may ask you to make repairs to prevent a rate increase.

What Can I Do to Lower My H omeowners Insurance Premium?

Ask your insurer about discounts for things like bundling your home and auto insurance, making safety improvements, and upgrading old electrical systems. Consider switching to a high- deductible plan. And, check your credit score, and if it’s not in great shape, work on improving it.

Finally, don’t forget to compare your home insurance rate regularly. You can use the Insurify rate comparison tool to find and compare real home insurance quotes from top insurers in less than 6 minutes. When you find a better deal on your policy, purchasing is easy. Try it today!

FAQ: Filing Home Insurance Claims

To S ave Money, Save Your Claims for Catastrophes

It might seem counterintuitive, but you could spend less in the long run by paying out of pocket instead of filing a claim. If the reimbursement doesn’t greatly exceed the long-term cost of a rate increase, you shouldn’t file.

Be sure to shop around for policies, ask questions, and fully understand the plan you buy: what’s covered, how rate increases are structured, and how long they last. Consider a high- deductible plan, and try to have savings equal to or more than the deductible amount. And remember that even when you must file a claim, your premium increase will last only three to seven years.