Why filing a claim boosts your insurance rates
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The purpose of insurance is to bail people out of a catastrophe with financial help in certain covered incidents so they do not have to pay a lot out of pocket all at once. If you need to file a claim, it can provide financial relief.
Although filing an insurance claim can bring needed help, you may not want to file a claim for everything. Claims often have long-term ramifications. In many cases, it leads to a hike in your rate of premium. Sometimes, it may also affect your ability to switch providers and get coverage in the future. Therefore, before you contact your insurance company about covered damage or loss, think twice about the consequences that it might invite later.
What is an insurance claim?
In the simplest terms, an insurance claim can be described as a formal request for money to the insurer by the insured to help pay for expenses resulting from a covered peril or loss. The process involves reporting the damage to the insurance company, completing paperwork and submitting the claim. Following this, the insurance provider will send a claims adjuster to the scene of the damage to evaluate the circumstances. The approval or rejection of a claim often depends upon this investigation.
If your claim is approved, you will get a check from your insurance company to pay for the expenses minus the cost of the deductible. The Insurance Information Institute estimates that one out of 20 policyholders usually files a claim each year.
Why do insurance claims affect your rates?
Insurance companies are always wary of red flags. If you file a claim once, the insurance company starts to consider you a risky customer and tries to recover the amount paid in claims through a price hike. The rate change usually lasts for three to five years. However, not all types of claims affect your premiums in the same manner.
For homeowners, some of the claims that are most likely to result in a price rise include:
- Dog bites: The highest number of home insurance claims consist of dog bite cases. If you own a pit bull, German shepherd, Great Dane or Doberman, it can be hard to find home insurance. A single attack usually causes insurance premiums to escalate.
- Theft: Claims of theft are often suspicious, requiring proof of purchase of the items and a police report. Because theft or burglary signifies that your home is in an unsafe neighborhood, the rate of the premium may rise.
- Water damage: The cost of repairing water damage is steep and a major red flag to insurance companies. If the damage was caused due to negligence or disrepair, the premiums will most certainly rise. Homeowners are better off avoiding water damage claims if the expenses are lower than the deductible.
- Slip and fall: Any hazardous condition on your property that results in the injury of another person is a warning sign for insurance companies. If you file for a slip and fall claim because someone got hurt at your house, your premiums may escalate.
Weather-related damages do not always result in a price hike, because the policyholder is not held responsible for it. A single home insurance claim may not cause an incline in the cost of premiums, but more than one claim in a span of three years is likely to invite a spike.
Auto insurance claims are much more volatile than home insurance and it cannot be said with certainty exactly which ones will cause your premium to rise. Each case is different and varies from one insurer to another. Some insurers forgive the first accident, but it is not guaranteed. The practical approach is to avoid making a claim if the damage is negligible, no property has been harmed and there are no injuries.
Should you file a claim to avoid rate changes?
Certain circumstances call for a claim, but sometimes it can be avoided, especially if the loss is not exorbitant and the expenses would be less than your insurance deductible. However, if a car accident causes injuries or property damage, it must be reported to the insurance company at once, whether or not you file a claim.
Whenever there is another party involved in an accident, no matter how minor, there are chances that the other person may file for a claim. Before that happens, call your insurance provider and report the accident, even if your vehicle suffered little to no damage. A formal account of your side of the story will serve in your favor if there is a claim from the other party. If your state requires a police report of every accident, your insurance company will find out even if you do not report it to them.
Can you save on your insurance after a claim?
It is not impossible to save on insurance after you have made a claim, but claims remain in your history for three to five years. Insurance companies will use that history to evaluate and screen you. Whether you are a home or car owner, some of the ways to lower your premiums to an extent after a claim include:
- Raise the deductible: One of the easiest ways to lower your insurance premium is to raise your deductible. However, carefully consider if you can afford to pay the deductible comfortably if you need to file a claim.
- Use discounts: Home and car insurance discounts are available to everyone, even after you make a claim. Discounts for bundling policies, taking safe driver training, eliminating potential problems from your home and paying your premium in full are some of the most among all insurers.
- Secure your house: Taking measures to avoid water and wind damage, mold, theft, and fire often results in home insurance discounts.
- Drive safely: Avoiding accidents and tickets for a number of years in a row can help you make a favorable impression on your insurer. Over time, this might also get you a price cut.
Frequently asked questions
How are claims recorded?
All insurance claims are recorded in either of two databases: Comprehensive Loss Underwriting Exchange (CLUE) and A-Plus. Records remain in the former for seven years and five years in the latter. You can request a copy of each to review the accuracy of your records.
When should I not file a claim?
If your damage is minor, the expense is lower than your deductible or if it happened because of your own negligence, it is better to not file a claim.
Will my rates rise after weather damage to my house?
Claims related to weather damage typically do not cause a spike in the rate, but this is not guaranteed and can vary from one insurer to another.