Home insurance is for disasters big and small. But when you don’t have a total loss (think: a home completely flooded by a hurricane or destroyed by wildfires), it can be hard to determine what losses warrant a claim.
Before we dive in, know that these are suggestions, not advice, because most insurance policies require you to report all claims regardless of the size or type.
1. The cost of repairs is more than your deductible
If a loss costs more than your insurance deductible to repair or replace your property, then filing a claim may be the way to go. But when losses cost less than your deductible, your insurance doesn’t kick in until that deductible is met. You’d be paying that amount out of pocket either way and filing a claim would only increase your premium.
But what do you do when the loss value is somewhere in between?
Let’s take a look at some examples to give you a better idea.
Example 1: Much to your surprise, a fence on your property has been slowly eaten by termites and needs to be replaced. However, the cost of repairs is less than your deductible. Because termite damage is often excluded, the claim could be denied, so it might make more sense to pay for these repairs yourself.
Example 2: Your pipe burst 18 months ago, and you made a claim valued at $40,000 to repair your bathroom cabinets, floors, walls, and some of the carpet in the hallway. But now you have a second pipe failure that caused $5,000 in damages. You have a $2,000 deductible.
Your insurance premiums already went up with the first claim and will go up even more with the second (or risk being canceled in some cases), so this may be a time to pay out of pocket. But there are a couple of important questions to ask yourself first:
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Can I afford the remaining repairs? In this scenario, you still have at least $3,000 in repairs. If paying that out of your savings isn’t realistic, then you may need to file a claim.
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Could there be more damage? Sometimes you can’t tell how much damage there is until you start digging into repairs. The possibility of your costs going up may make filing a claim the more sensible option.
The takeaway: Your claims history, the amount of damage, your finances, and what your policy covers all play a role in when to file a claim.
2. You’ve experienced a total loss
This is when you really need your insurance to come through. Your policy is designed to cover unexpected incidents that make your home uninhabitable. If you have a total loss that your policy covers, filing a claim is a no-brainer and the quickest way to get your life back to normal.
3. You haven’t filed a claim in years
Every homeowner has a Comprehensive Loss Underwriting Exchange (CLUE) report, which is a comprehensive record of your entire claim loss history. Claims usually stay on this report for seven years.
Insurance companies use this report to help them predict how likely you are to file a claim in the future. The more claims you have on your record, the more likely you are to file a claim (statistically speaking), and the higher your premiums may be. The reverse is also true: a claims-free record is usually awarded with lower rates.
Most insurance companies pay particular attention to the last three years of your loss history. If you go three years without another claim, the incident may be considered isolated and your premiums may go back down. You can use this timeframe to gauge when filing a claim might make sense if you’re on the fence and already have a claims history.
If you don’t have a claims history, the typical premium increase is about 9%, but that depends on your insurer.
When not to file a home insurance claim
Being savvy about when to file and when to repair on your own can help you save more on insurance in the long run. While remembering that most policies require that you file a claim, here are some instances when you might not want to file a claim:
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Repair costs are less than your deductible.
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The loss is caused by normal wear and tear.
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You had a recent claim within the past three years.
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The cost of repairs is barely more than your deductible.
Top 5 reasons home insurance claims get denied
If you’ve run the numbers but still aren’t sure if you should file a claim for fear it will be denied, it helps to know what causes a claim to get turned down for coverage. These are the top reasons insurers deny claims:
- The damage was caused by a non-covered peril. Say your sewer backs up and causes your basement to flood. If you don’t have water backup coverage, the claim will not be covered.
- The damage was caused by normal wear and tear. Homeowners are expected to do regular upkeep on their homes to keep them in good working order. So if your roof is in disrepair from old age and you experience a leak, that damage might not be covered. But if a tree falls through your roof and you get a leak, that’s a different story (and usually covered by insurance).
- The damage was illegal, dishonest, or intentional. Insurance doesn’t cover illegal, dishonest or intentional acts. This is true even if the named insured didn’t commit the act. If any insured illegally, dishonestly, or intentionally causes damage on their own or at the direction of another insured, there’s no coverage.
- The damage happened too long ago. This goes back to the original point that most policies require you to promptly file a claim when it happens; otherwise, it would be too hard to determine what caused the loss or to assess whether actions or activities increased damage over time.
- Your policy lapsed. If your policy has lapsed when the damage occurred, you will not have coverage for the claim.
Remember: Your insurance company is there to help you. If you’re not sure whether to file a claim, ask them. Most carriers won’t force you into a claim or will stop you from filing one. Ask a lot of questions to make sure you are comfortable with the likelihood of getting the claim approved.
How claims impact your premium
Insurance rates don’t go up based on the value of the claim. They go up simply because you had a claim – although in some states, a denied claim or certain types of claims don’t impact your rate.
But some types of claims do impact your rates more than others. For example, catastrophic claims (think: wildfires and hurricanes) have less impact or no impact on your rates than, say, a dog bite or theft claim. The logic is that you may have slightly more control over those losses, whereas no one can control a hurricane.
That said, on average, premiums go up about 9% after a first claim and 20% after a second claim. That’s because decades of data show that someone who has one claim is very likely to have another claim within three years. The claims tend to get more expensive each time, too.
Long story short? Your homeowners' policy is meant to help you deal with sudden and unexpected large losses. Use it when you really need it.
