Your first home; whether it’s a small studio apartment or an actual house that you’ve purchased, is there anything more exciting? After four years of apartment and rental home dwelling, I experienced the thrill of purchasing my first home back in the summer of 1989 in the small town of Bixby, Oklahoma, just outside of Tulsa. My husband and I moved in on July 4th weekend and set about removing the hideous orange checkered wallpaper from our new kitchen. July in Oklahoma is hot and so we decided this might be a good time to try out our central air conditioning. We flipped the switch and nothing; not a buzz, not a hum and definitely no cool, refreshing air. Surprisingly, we were able to contact a repairman even though it was a holiday weekend, although after receiving the bill we understood why he had been so happy to take our call. We learned that the unit had been damaged by lightning and we agreed to the repairs. What else could we do? It was 108 degrees at 10:00 in the morning! But from my background as an insurance underwriter, I knew that lightning damage was probably covered under our brand new homeowner’s insurance policy. But, should we file a claim? That was the ultimate question.
There are many people who believe that you should always file a claim, subscribing to the “that’s why I have insurance” philosophy. However, there are times when it may not be to your best advantage to make a claim against your insurance contract. First, let’s talk about some of the negative consequences that could result.
Loss of Discounts or Added Surcharges
Some companies offer a “claim free discount” to those customers who have not submitted any claims for a given period of time. Depending upon the company, the policy type, the state in which you live and the length of time you have been claiming free these types of discounts can range from 2% to as much as 15 to 20% of the total premium. Companies may also have some type of claim surcharge rating plan where a penalty is actually assessed depending upon the type, size, and number of claims submitted over a given time period.
Forced Increase of Deductible
While not allowed everywhere, there are some states in which your insurance company could force you to take a higher deductible if they determine that your claim frequency is higher than average. For example, suppose you have a $100 deductible and your teenaged son has $200 to $300 worth of personal property (CDs, DVD, video games, etc.) stolen from his car three times within a 12 month period. If you were to submit each claim separately, your insurance company might decide to require you to switch to a $500 deductible in an effort to eliminate these small but frequent claims as an alternative to canceling your policy.
Policy Cancellation or Non-Renewal
While insurance laws do vary from state to state there are many states in which an insurance carrier can refuse to continue the policy based on either too many claims, known as “claim frequency” or excessively high payouts on claims, known as “claim severity”. Also, once your policy has been canceled or non-renewed for claim frequency or severity it can become very difficult to obtain new insurance coverage. Most states require that customers disclose prior losses and any non-renewals or cancellations of other homeowners insurance cover policies within the past three to five years when applying for new coverage. The new insurer may be able to refuse to write new coverage based on the prior loss and cancellation history or charge a higher premium. Think you can get away with not disclosing prior losses or cancellations or non-renewals to a new insurer? Think again. Many companies now routinely order Loss History Reports from outside vendors to check on a customer’s prior insurance history. If your company finds that you have been less than forthcoming about your insurance history the insurance contract could be voided based on misrepresentation.
Read moreHomeowners Insurance: When Should You File a Claim?