You may be familiar with the rumor that filing a home insurance claim will raise your insurance rates. This is an unsettling idea – isn’t home insurance supposed to protect you against losses? Well, yes, it is. And it will. But that doesn’t mean it’s a great idea to file claims for every little bump and scrape that your home endures. The answer to the question of will making a homeowners insurance claim raise rates is complicated – and, in essence, the answer is “it depends.” Let’s take a look at what you need to know about how a home insurance claim can impact your home insurance rates.
Will filing a claim make my insurance rates go up?
Rates can increase in some states due to an insurance claim – but that could be because these states have lower premiums to begin with. States with higher premiums could have less of a rate increase due to claims. Even a small claim can cause your rates to increase because, in the eyes of insurers, you’re more of a risk. However, one home insurance claim may not spell doom.
What kind of home insurance claims have the biggest impact on your insurance rates?
Typically, the claims that will have the biggest impact on your rates are liability-related ones. Claims like theft and vandalism can also have an impact on your home insurance rates. That’s because the worry is that there could be a second incident of vandalism or theft – those types of claims could happen again.
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Your CLUE report.
Insurance companies use a report from the Comprehensive Loss Underwriting Exchange (a CLUE report, for short) to decide whether or not to cover a homeowner and how much to charge them for coverage. A CLUE report is basically a history of the insurance claims you’ve made – it includes basic information like your name, the address associated with the loss, the loss itself, and the amount paid out. Your CLUE goes back for about seven years. If your insurance company takes a look at your CLUE and decides they don’t like what they see, they could decide to nonrenew you or raise your rates.
The catch with CLUE reports is they could include claim histories from the previous owner of your home. So, if you file one claim but the previous owner filed three claims…well, the rest might not be pretty. So, that’s something to know and be prepared for.
Now, even if you want to change insurance companies in the hopes of getting lower rates, remember that all insurance companies use CLUEs. So there’s no pulling the wool over anyone’s eyes about your claims history.
How can you keep your home insurance rates from going up?
Of course, the goal is to not have your home insurance rates go up at all. There are a few things you can do to prevent your rates from increasing.
1. Only use home insurance for catastrophes.
If you have minor damage to your home that you can take care of yourself, try to avoid filing the claim. This will keep any sort of claim from showing up on your CLUE and counting against you. Also, take care of home maintenance on your own, if you can.
2. Don’t file an insurance claim for a value that’s less than or close to your deductible.
Your deductible is the amount that you agree to pay if you have to file a claim before the insurance company will cover the rest. Let’s say that your deductible is set at $1000, but you have a claim for $1300. You will already be paying $1000 before the insurance company will step in to cover the rest of the expenses, so you have to ask yourself if filing the claim is really worth the $300 that it will earn you.
3. Check your CLUE report if you can so that you can correct any false info.
If there are mistakes in your CLUE report that could be negatively impacting your rates, correct them so that they will no longer count against you. Sometimes mistakes happen, or, as we said, inquiries that weren’t actual claims can be recorded.
4. Seriously consider that second claim.
If you’re worried about your coverage getting nonrenewed, seriously consider filing a second insurance claim after your first. Crunch the numbers and decide if it’s worth it based on your deductible. Keep in mind that filing too many claims can lead to your rates going up or your policy being nonrenewed.
When you face a loss to your home, the question becomes whether or not you want to file a claim. There are a lot of factors that go into determining if your rates will go up or not after a claim. The bottom line is that you need to read your policy thoroughly and understand your home insurance policy.
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Source:
http://money.cnn.com/2014/10/19/real_estate/homeowners-insurance-claims/index.html