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When Should You Actually File a Home Insurance Claim?

As a homeowner, it may be stressful deciding whether or not to file a claim with your insurance company after some damage or theft occurred.  Unfortunately, making the wrong decision could follow you for a long time, leading to an increased premium that could have been avoided.  Even if you incurred accidental damage, say from a sinkhole, don’t be surprised if your rates suddenly increase.   Further, home insurance claims get recorded on your Comprehensive Loss Underwriting Exchange report, which allows insurance companies to determine how many claims you filed (in the past 7 years), and how likely you are to file another one. At this point, they can decide if you and your home carry too much risk for the company and void your policy.

The first consideration when determining whether you want to file a claim is if your policy even covers the respective type of damage.  If you are not in California, most likely your insurance plan will not cover earthquakes, and most plans in general do not cover other natural disasters.  For example, separate policies may be purchased for events such as landslides, mudflows, or even other water damaged from sewer systems or drains.

While seemingly obvious, you should never involve your insurance company if the repair will cost the same amount, or less than your deductible.  In some cases, it is beneficial to pay out of pocket even when the price of repair is above your deductible.  This is because likely with any form of damage, if you file a claim you will see an increase in your premium and continue paying more than necessary for a long time.

Typical wear-and-tear as well as maintenance issues should never be handled through insurance. Insurance companies expect their customers to be proactive in their houses, so if you could have avoided the issue it is likely that it will not be covered.  For example, if a wall surrounding the property that has been corroding for years suddenly falls, it could have been taken care of early on and therefore will probably not be covered.  Further, this will show the insurance company that there is a risk doing business with you and may ultimately lead to a termination of your policy.  In general, you should avoid filing a claim if you have already filed one within the past 3 years for the same reason.  They have the authority, and you run the risk, of getting your policy non-renewed, and could lead to difficulty finding another company to insure your property.

Realistically, you should only actually file a claim in 3 cases.  First of all, the cost of the damage has to exceed the deductible for your policy.  For example, if your deductible is $1500 and the cost of damage is $7500, it is definitely a responsible decision to file a claim given the extent of the repair.  Next, if there is a total loss or significant damage (basically unlivable), it would be beneficial to file a claim so you can be compensated for you losses. Lastly, if you are on the fence deciding if a claim is worth it, make sure it is at least three years after your last claim to ensure less future issues.