When Is It Worth Filing a Home Insurance Claim?
Homeowners insurance covers more damages and losses than you might think. Assume you left your phone in your car while running into the grocery store, and when you return, your window is broken and your $1,000 phone is gone. Perhaps a storm knocked out your power for several days; now everything in your fridge and freezer is garbage, and replacing it will cost a fortune.
Is it worthwhile to file a home insurance claim in these situations? We'll go over what factors to consider when making this decision, as well as when it's best to file a claim.
What Is Home Insurance?
Home insurance protects you financially against losses caused by disasters, accidents, thefts, and liabilities involving your home or property. Standard homeowners policies typically cover the structure of your home, personal belongings, additional living expenses, and liabilities resulting from injuries or property damage caused by you, your family members, and pets.
Most people believe that home insurance only covers major damage from fires, natural disasters, and other perils, but policies can also cover a surprising number of minor items and less serious scenarios:
- Drones
- Tombstones
- Patios, sheds, and gazebos
- Personal belongings for college-aged children
- Travel accessories such as luggage, tablets, and smartphones
- Food spoilage caused by power outages on your property
- The cost of repairing credit reports in cases of identity theft
- Unauthorized use of ATM, credit, or debit cards
How Does a Homeowners Insurance Claim Work?
In cases of theft, fire, vandalism, or other emergencies, always contact the appropriate authorities first. Once it's safe, you can file a home insurance claim with your insurance agent or company.
Your agent will walk you through the steps, but make sure to inquire about any forms or supporting documentation you will need to submit. You must also take reasonable steps to prevent further losses, such as turning off the water in the event of a burst pipe.
An adjuster may visit your home to assess the extent of the damage and estimate repair costs for larger claims. The insurer may send settlement checks to you directly or, in some cases, to both you and your mortgage servicer. In this case, you would endorse the check, and your mortgage company would release funds as the work was completed.
A claims adjuster is unlikely to come to your home if your personal belongings have been damaged or stolen. Your insurer may simply send you a check for the estimated loss in these cases (after subtracting deductibles and potentially depreciation). If you have replacement-value coverage for an item, you may be required to submit purchase receipts proving that you replaced it.
Why Claims Aren’t Always Worth It
Filing a claim for home insurance is usually simple, but is it something you should do? No, not always. Here's why filing a claim may end up costing you more than you think.
Deductibles
Your deductible has a significant impact on whether it is worthwhile to file minor claims. You could have $500 worth of spoiled food, but if your deductible is $500, filing a claim makes no sense. After you pay your deductible, your insurer will have nothing to pay out.
Loss of a Claim-Free Credit
If you haven't filed a claim in a certain number of years, usually three to five, insurers may give you a discount on your policy. While discounts vary, you could save between $200 and $500 per policy period. If you file a claim, you may lose your discount until you have been claim-free for the required number of years again. In other words, a minor claim may end up costing you money in the long run.
Premium Increases
Insurance companies may raise your premium after you file a claim if they believe you will file another claim in the future. You may have to pay more in premium increases than if you had simply replaced or repaired the items yourself.
If you've filed several minor claims in a short period of time, the insurer may decide not to renew your policy. This could result in a larger and more expensive problem.
Difficulty in Getting Insurance
Home insurance claims are typically entered into the Comprehensive Loss Underwriting Exchange (CLUE), a national claims history database, and remain there for five to seven years. Your chances of finding affordable coverage may decrease as the number of claims you file increases. If you have more than two claims in the last five years, you may have difficulty finding home insurance at all.
When the loss or damage is less than your deductible, it's usually not worth filing a claim. Even if your loss exceeds your deductible, you should reconsider filing (or simply do not file) a claim in the following circumstances:
- For a minor amount, typically less than a few thousand dollars
- Not a covered event in your policy
- One of a few that you’ve filed in recent years
When Is a Homeowners Insurance Claim Worth It?
It is not something to be taken lightly, given the consequences of filing a claim. Before filing, consider the potential costs and benefits for your particular situation. Here’s when filing a claim may be worthwhile:
No Recent Claims
As previously stated, having more than two claims in the last five years can make it difficult to insure your home. If you have filed few or no claims, it may be worthwhile to file one if the amount is significant enough to warrant the potential ding on your CLUE report.
Serious Losses or Damages
Consider homeowners insurance to be a resource for catastrophic events or major problems. If this describes your situation, it's probably a good idea to file a claim, especially if the amount is significantly greater than your deductible. If you're unsure, ask your agent whether it's a good idea to file a claim in your situation.