Filing an insurance claim seems like the natural course of action when something goes wrong, whether it’s damage to your home, your business, or other personal property. After all, that’s what insurance is there for, right? While this is true, there are certain situations where choosing not to file a claim may actually be the right decision.
Understanding the nuances of when to file – and when not to – can help you protect your finances, manage your insurance premiums, and maintain your coverage. This is not about “protecting” the insurance company, it’s about protecting your interests as the insured.
Consider Your Deductible
Your deductible is one of the most important things to evaluate before filing a claim. This is the amount you’re responsible for paying out of pocket before your insurance coverage kicks in.
For example, if your deductible is $1,000 and the damage to your property is valued at $1,250, your insurance payout will only cover the remaining $250. Before filing a claim for smaller amounts like this, ask yourself if it’s worth it. By the time you pay your deductible, the reimbursement may be minimal, and filing could impact your premiums (more on that later).
Suggestion: Save your claims for larger, costlier incidents where the payout significantly exceeds your deductible.
Understand What Your Policy Covers (and What It Doesn’t)
Before filing a claim, carefully review your policy to determine if the incident is covered. Insurance policies outline specific scenarios they’ll protect against, as well as exclusions. Filing a claim for something that isn’t covered will not only result in a denial but may also raise red flags with your insurer.
For instance, many homeowner insurance policies don’t cover flood damage unless you’ve purchased separate flood insurance. Similarly, small business owners may find that certain losses, like cyberattacks or equipment breakdowns, aren’t covered unless they have add-on policies or endorsements.
Knowing what’s included in your policy – and what is not – can save you time and hassle. If the damages fall outside your coverage, it may be wiser to handle repairs out-of-pocket.
Suggestion: Keep a detailed copy of your insurance policy and speak with your insurance agent if you’re uncertain about what’s covered.
Weigh the Impacts on Your Claims History and Premiums
Every insurance claim you file becomes part of your loss history, and having too many claims on your record can result in higher premiums or make it much harder to renew your policy. Insurance companies view frequent claims as a sign of higher risk.
For example, suppose a storm knocks out your power and you lose meat stored in a freezer. You file a claim because the value exceeded your deductible. Then, a month later, another storm causes a tree branch to fall and damage your roof. Again, the damage exceeds your deductible, and you file another claim. While each incident is legitimate, submitting claims for smaller losses – especially within a short period – can prompt your insurer to raise your premiums or label you a higher-risk customer at renewal time.
Instead of filing claims for every minor incident, consider covering smaller repairs or expenses yourself. Save your claim allowance for major accidents or damages that have a high financial impact.
Suggestion: Consider asking your insurance provider how a specific claim could affect your premiums or renewal terms before moving forward.
Evaluate the Total Cost vs. Long-Term Consequences
Insurance is a useful safety net, especially for large, unexpected expenses that would otherwise be financially devastating. However, not all incidents require “tapping into your safety net.”
Here’s an example to illustrate this point:
- If the cost to repair damage is $800 and your deductible is $1,000, filing a claim clearly doesn’t make sense.
- If the damage costs $1,200 to repair, filing a claim nets you just $200 after your deductible is paid. Considering the potential for increased premiums, this claim might still not be worth it.
Always weigh the short-term payout against potential long-term consequences, like increased payments or a tarnished claims history. If your financial situation allows, covering smaller repairs yourself could help you retain lower monthly premiums and avoid unnecessary complications.
When You Should Always File a Claim
While this blog primarily focuses on when not to file a claim, there are situations where filing is non-negotiable:
- If the damage is extensive and exceeds your ability to cover costs out-of-pocket
- If someone is injured and liability is involved
- If you’re unsure of the full scope of the damage (e.g., a plumbing issue that could cause hidden water damage)
Remember, insurance exists to protect you in times of financial distress. Use your better judgment to determine whether filing a claim is the right move for your specific situation.
Choosing whether or not to file an insurance claim isn’t always black and white. By understanding your deductible, policy coverage, and the potential long-term consequences of filing a claim, you can make smarter, more informed decisions that ultimately save you time and money.
When in doubt, contact our team to discuss your policy and options.