You’ve probably heard some horror stories about someone making a claim against their homeowners or auto insurance policy only to have their rates go up. But did you know that some claims (or too many small claims) could cost you your policy altogether?
It’s true- sad, but true. It seems that with the recent onslaught of natural disasters, the insurance companies have had to tighten their belts as they shelled out quite a bit of money. What this means for you is rate increases or policy cancellations at the drop of a hat, if you drop your hat in your home that is, which then makes a hole in your floor.
The trick? Don’t file a claim against your homeowner’s insurance policy unless not doing so will have devastating financial results on your family. Your coverage should be used for “big” damages, like a substantial fire burning the top level of your home off, not for the little things like your washing machine overflowing and causing a big, bubbling mess- (be thankful that the water is clean!)
A good rule of thumb for making a claim against your homeowner’s coverage is to at least double your deductible in out-of-pocket expenses. If your deductible is $500, make sure the damage is over $1,000. If your deductible is $1,000, the repair costs need to be over $2,000. This, of course, is the bare minimum, as these amounts are very small in the percentage of your home’s worth, and worth a kick in the pants if your policy gets cancelled.
Think of your homeowner’s policy like your life insurance. You take out this type of coverage to take care of your family members in the unfortunate and untimely event of your death, right? You don’t want it to necessary to put a claim in, but it’s nice to know it’s there to help your family financially. Your homeowner’s policy should be used as a last resort.
Of course, there are quite a few incidents that your homeowners insurance won’t cover, no matter how financially devastating it is to your family. For example, say you open your front door one day and the entire exterior wall collapses due to termite damage. Your roof is sagging, it’s cold outside (and now inside), and you have strange, furry critters coming in to explore. The necessary repairs will not be covered, as you should have been able to tell that termites were infesting your home. This is considered neglect on your part and won’t be covered under your homeowner’s policy.
Water and mold damage is another growing problem that is being frowned upon by the insurance industry. In fact, those who file a claim, no matter how large, are not only prone to their policies cancelled, but also being “blackballed” and unable to get adequate home coverage from any insurer at any price. A central insurance database, the Comprehensive Loss Underwriting Exchange (or CLUE for short), is home to 90% of all insurance claim information filed for all potential insurers to see. If you were an insurer, would you want to insure a home with water damage? Let’s take this one step further - if you were interested in buying a home that has been flagged for water damage and cannot be insured, would you buy that home or look for another? If you can’t decide, your mortgager will decide for you, as they won’t lend money out for a home that cannot be adequately insured.
In closing, don’t call your insurance rep inquiring about a particular claim to your home, as many policies have been canceled with just an inquisitive phone call. Do some homework on the World Wide Web anonymously before you even think about thinking about making a claim.
