An insurance claim is a reimbursement your homeowners insurance company pays based on the terms of your policy when you have a loss. Losses are usually the result of property damage, but they can also stem from liability issues. Essentially, you pay a premium in exchange for the assurance that your insurer will reimburse you for damage from a disaster or other loss.
How does a home insurance claim work?
The claims process depends somewhat on the type of insurance. For homeowners insurance, you need to file a claim with your insurance company. You can usually do this by calling your insurer or going to its website and filling out the first notice of loss (FNOL). This is a form that initiates your insurance company’s claim process. If you can, try to have your policy number and any other documents or information that support your claim, such as police reports or pictures of your damage.
In addition to notifying your insurer, you also have a responsibility to make temporary repairs to try and stop the damage from getting worse. This might mean covering a hole in your roof with a tarp, shutting off your water if you’ve had a pipe burst, or boarding up a broken window. Whatever the situation, only take steps to prevent further damage if you can do so safely.
The same goes for documenting damages. Photographs and video of that hole in your roof can help your insurance company, but taking them from the ground is safer than climbing up a ladder.
Once your insurer gets the FNOL, it will assign a claims adjuster to your case. The adjuster inspects the damage, estimates the value of your loss, and reports their assessment to your insurance company. Your insurer then uses the adjuster's report to either approve or deny your claim.
Please note that you don’t want to make any permanent repairs until the adjuster has had a chance to view your property.
When should you file a home insurance claim?
Believe it or not, you have an obligation to alert your homeowners insurance company any time you have property damage or another potential loss, so you should never hesitate to file a claim. More importantly, the reason you bought home insurance is to protect your finances if you ever have significant damage, so you want to file a claim if:
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The cost of repairs meets your deductible. An insurance deductible is the portion of a claim that you’re responsible for covering. If your repair bill is the same as or lower than your deductible, it makes sense to pay the cost out of pocket.
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The damage constitutes a total loss. This is when you really need your insurance to come through. Homeowners policies are designed to cover unexpected incidents that make a home uninhabitable. In the case of a total loss that your policy covers, filing a claim is the quickest way to get your life back to normal.
All of that said, there are times when you may decide to withdraw your claim once it's filed. For example, you may decide to take things in your own hands if:
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The cost of repairs is lower than your deductible.
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The damage is excluded from coverage.
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The damage is the result of normal wear and tear.
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You’ve filed multiple claims in recent years.
How is an insurance claim paid?
Once your insurance company determines that your loss is covered under your policy, then it typically makes claim payments via check or direct deposit. How long that takes, however, depends on your company’s processes for issuing payments and the laws in your state. Payments must be made within a certain number of days once coverage has been determined.
Moreover, you may find yourself in a couple scenarios that impact how your insurance claim is paid. Some common examples include:
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You have a deductible. The main issue here is to simply note that your claims settlement will be reduced by the deductible amount. So if your claim is worth $10,000, but you have a $500 deductible, your claim payment check is for $9,500.
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You have a replacement value policy. Most home insurance covers your dwelling for its replacement value. This often means you get an initial settlement check for your home's actual cash value and a final payment for any recoverable depreciation.
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You have a mortgage. Your mortgage company may be named as an additional insured on your policy to protect their financial interest. In this situation, the claim payment for damage to the structure of your home may go to your escrow account or be made out to both you and your lender. Checks for personal belongings, however, go to you.
Your mortgage lender may also require you to sign your settlement check over to the contractor performing the work. This is to make sure that the work is being carried out correctly.
How can making claims affect your premium?
The most important thing to know about claims and your premium is that insurance laws in most states stop insurers from counting catastrophic claims against you.
That said, other types of claims may impact your premium or coverage, especially if you have multiple claims. For example, you may:
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See higher premiums. If you file a home insurance claim, it’s highly likely that your premiums will go up if you try to get a new policy within three to five years after your claim.
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Have trouble finding coverage. Multiple claims may make you look more risky to carriers and limit your options for getting a new policy.
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Be canceled. Depending on the value and nature of your claim – or if your carrier believes it’s fraudulent – your insurer may cancel your policy.
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Get a nonrenewal notice. Your carrier may elect not to renew your policy when the current term is up.
One of the best ways to avoid these negative consequences is to reduce your chance for damage. With proper home maintenance and a little forethought, you can do a lot to mitigate your chances of filing one of the more common homeowners insurance claims.