What to Consider Before Filing a Claim
Filing a claim? Consider costs and implications before taking action.
What to Consider Before Filing a Claim
Many of us have experienced insurable homeowner or automobile losses at one time or another and wondered whether to file a claim. During such challenging times, two questions commonly arise:
If I file a claim, will my insurance company raise my rates?
Will they drop me?
Small claims under $500 generally do not affect your individual premiums if they are infrequent. However, insurers vary in their underwriting of accounts with losses, especially “at-fault” losses. Two or three claims a year on a given policy will signal to most insurers that you are a high-risk insured. Furthermore, you should consider the impact of even one claim on your ability to obtain insurance elsewhere. Some companies scrutinize applicants who have had claims with their current or previous carriers in the past three years.
Consumer watchdog groups have criticized one method used by most insurers in the underwriting process for personal lines applicants—the use of a shared database called CLUE (Comprehensive Loss Underwriting Exchange). This database is accessed by insurers not only to investigate the applicant but also, in the case of homeowner’s insurance, the property itself. Participating insurers report all claims, large and small, even those not resulting in a payout. Realtors dislike this system because it often highlights problems with properties that they feel unnecessarily complicate a home sale. It is important to understand that your record is impacted by the reporting of the claim much like your credit is affected by late payments or financial defaults.
File a claim with your auto or homeowner's insurance
So when should you file a claim with your auto or homeowner’s insurance? Common sense suggests if the repair costs are less than the deductible, it’s better to pay for the repairs yourself. With this in mind, you might consider opting for a higher deductible to lower your rates. Save the money you would have spent on lower premiums in a savings account for future accidents, even if the costs are slightly above your deductible.
If you have an automobile accident involving another vehicle or a passenger, or if there is a third-party slip and fall at your home, you should inform your insurance company—regardless of deductible or repair costs. This protects both you and your insurance company, as you cannot predict if the other party will decide to file a claim later. In such instances, it is crucial to record your version of events with your insurer and, often, the police as well.
Keep in mind that each claim scenario is different and carries its own implications. For example, if your windshield cracks due to a stone on the highway, your insurer will likely consider it an “act of nature” and not assign fault to you as the driver. However, if the damage is only slightly higher than the deductible and follows another recent, more serious claim, it may be wise to pay the difference yourself. We can help you assess the likely costs and benefits of filing a borderline claim.
Property Loss
It is important to note that policy language varies from company to company regarding your responsibility to report a claim, including information needed and timeliness of reporting. Read the policy carefully and consult with your agent whenever a significant property loss occurs and/or there is a threat of legal action or actual lawsuit. Do not let indecision or carelessness jeopardize your ability to rely on the coverage you may desperately need one day.
Employee benefits consulting services and employee benefits-related insurance products are offered through Compass Insurance Agency, Inc., an affiliate of Compass Bank. Neither Compass Insurance Agency, Inc., nor its employees provide legal or accounting services, and information contained in these materials is not offered as legal or tax advice. The information provided is believed to be reliable, however, its accuracy has not been verified by Compass Insurance Agency, Inc. Compass Insurance Agency, Inc. makes no guarantee with respect to the information provided in these materials and assumes no liability for loss or damage resulting from errors, omissions, or reliance on such information. You should consult your attorney and/or tax advisor for guidance specific to your situation.
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