Should I File A Claim?

The reason you buy homeowners insurance is to cover the cost of damage to your home. But should you always ask your insurance company to pay? Or are there times when you would be better off not filing a claim?

The answer isn’t always clear. However, we can offer a framework to help you evaluate when filing a claim is more likely to be in your best interest and when you might want to pay yourself instead.

There are three questions you should ask when deciding whether to file a claim:

  1. What’s the downside?

  2. Will this be covered?

  3. How much will insurance pay?

What’s the downside?

Let’s begin with the risk. You may not think of filing a claim as risky, but it can be. There are three negative things that can potentially happen if you file a claim. 

  1. Your rates may go up when your policy renews. Insurers typically charge extra if you have a claim in the last five years. You can also lose benefits like a claims free discount.

  2. You could lose coverage benefits like a deductible waiver or accident forgiveness that might be worth more in the future. These benefits can be very valuable so you may not want to use them up on a small claim. 

    Accident forgiveness means your premium won’t go up after a claim…but if you file a small claim you won’t have the benefit in the future if you have another claim. So if you have a small claim, are you sure you want to file it and lose your accident forgiveness?

  3. Your policy could get canceled. While hopefully that won’t happen after one claim, it is much more likely after a second claim. Paying the small claim yourself means you don’t have to be nervous about another claim.

In other words, you want to measure the benefit (the claims payment) against the risk (paying more in the future).

Will this be covered?

Obviously, before you consider the pros and cons of filing your claim, you need to understand if the loss is actually covered by insurance. Why might it not be covered?

It’s possible the loss is less than your deductible. Remember, you don’t just need to consider your primary deductible, but any secondary deductibles like for wind damage which are often higher.

Additionally, insurance doesn’t cover things like flood or wear and tear of your roof.

How much will insurance pay?

If it is covered, the next step is understanding what your payment will be. There are three potential limitations on your payment.

  1. Your deductible (including the alternate deductibles mentioned above).

  2. Any co-pays you may have such as from depreciation of your roof or contents. In this case, your insurance will only pay for part of the damage.

  3. You need to be aware of any caps on your payments. For example, jewelry or art usually is limited to a few thousand dollars, unless you bought extra coverage.

Formulating A Strategy

Now that you understand the important factors, what can you do to move the odds in your favor?

First, think strategically. Before you file a small claim, consider what if you have a larger claim next year that you would definitely want to file? That would make it more likely you get canceled. If you don’t want to take that chance, you may not want to file the small claim today.

If you don’t think you are likely to file a small claim, then you should raise your deductible. There is no point having a $1000 deductible if you wouldn't file a $2000 claim. Raising your deductible can save you 10-25% on your premium. Use our Deductible Calculator to explore what you could save.

Also, don’t pay for benefits like accident forgiveness or a deductible waiver if you’re not going to file a smaller claim. These benefits might sound appealing, but insurers aren’t dumb. They charge you for them so you should only get it if you think you’re likely to have a large claim.

A good philosophy is to think of insurance as being for significant claims that would significantly impact your finances. That allows you to save a lot on premium by raising your deductible and putting those savings aside in a rainy day fund to pay in case you do have a future large claim.

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