Should I file an insurance claim or not?
The following article was written from experience, and should not be used as the only source in determining to file an insurance claim or not on your home or rental property.
The four seasons in New England offer some of the best weather there is to be had in the United States. The fall provides a beautiful landscape and wonderful cool nights, for example. However, the change in seasons also provides severe swings in nature that result in potential blizzards & freezing temperatures in the winter, flooding in the spring, lightning in the summer, and possible Hurricanes in the fall.
Your home has to withstand many different types of elements throughout the year. A severe storm may hit the region and your home could be damaged. Once the damage occurs, it is up to you as the homeowner to fix the damage. This is when the question arises, “should I file an insurance claim to fix the damage?” For the sake of simplicity, we are not going to discuss if the damage is actually covered, we are going to assume the damage caused by the weather event is covered under your homeowner’s policy.
Through my experience as an insurance agent, guiding my customers through the claim decision process, there are a few pieces of information from your policy that you should review when deciding to file a claim:
The deductible. The deductible is the portion of the claim that you will be responsible for. The standard deductibles are $500, $1,000, and $2,500.
Claims Free or Loss Free Credit/Discount. Your policy will have a discount or credit listed on your policy for your claims history. If you have had no claims in the past 3+ years, it could be significant.
Let’s create a scenario where your house has been damaged by a winter storm. The gutters were destroyed and were ripped off your home when a large chunk of snow & ice slid off the roof.
The first step is to quantify the damage and repair. If you have a contractor or handy man that you use, have them provide you an estimate for the damage. In this scenario, let’s say the contractor gave you an estimate of $1,500 to fix the damage. This is where the policy information becomes a factor. You have a $1,000 deductible on your policy, so the insurance company would cut you a check for $500 ($1,500 damage minus the $1,000 deductible).
However, once you file a claim, the claims free discount ($250 per policy year in this scenario) you receive on the policy may go away for 3 years (that’s a total credit of $750 over 3 years). If you add the deductible ($1,000) and the claims free discount over 3 years together ($750) that is $1,750 that is coming out of your pocket for this claim. This is the threshold I like to use when determining to file a claim. Essentially, if you factor in the loss of the claims free discount with the deductible ($1,000 deductible + $750 claims free discount = $1,750), you are eventually going to pay an extra $250 out of pocket for filing this claim ($1,500 - $1,750 = -$250).
In this same scenario, if the contractor gave you an estimate of $3,000, now you are receiving a net of $1,250 from the insurance company ($3,000 minus $1,750). This seems more attractive..
The decision to file a claim will always be the customer's, not the agent's nor an adjustor's. However, it is helpful to understand the many financial ramifications,,, and to have an advocate on your side like Gordon.