You love the big cherry tree in your home’s front yard. Each spring, it explodes in a riot of bright pink flowers. Each summer, it drops sour fruit that perks up nicely in a sugary pie.
Until it doesn’t. One summer day, your family comes home to find one of the cherry tree’s limbs in your living room, felled by a strong thunderstorm. The damage is extensive: two broken windows, a caved-in window sill, and serious water and impact damage to the living room floor and furniture.
Once the initial shock wears off, you prepare to file a home insurance claim. But then, you start to ask questions. What if your insurance company denies the water damage portion of the claim? What if my home insurance premiums spike? How much will I have to pay out of pocket due to your policy’s high deductible? Should I even file this claim?
Should I File a Home Insurance Claim?
The fact that a seemingly serious event like a tree falling through your house is such a close call teaches us an important lesson about homeowners insurance: It’s not always in your best interest to file a claim. Even when they cause short-term financial pain, some incidents aren’t worth filing over.
Plus, standard homeowners insurance policies exclude certain types of incidents that can cause serious financial stress for homeowners, such as floods and earthquakes. You need separate insurance policies if your home is at risk of these uncovered perils.
Pros & Cons of Filing a Homeowners Insurance Claim
If you’re considering filing a homeowners insurance claim, you’re probably facing a hefty bill for cleanup and repairs or a long list of damaged items to replace. Or perhaps you’re staring down a lawsuit brought by a guest or worker who sustained serious injuries on your property.
In any case, you need to figure out whether it makes sense to go through with your claim — and fast. That means objectively assessing the pros and cons of doing so.
Pros of Filing a Home Insurance Claim
Depending on the circumstances, filing a home insurance claim has significant financial benefits.
- It Helps You Pay for Repairs. If your claim is approved, you can use the payout to offset the cost of repairs and restore your home to its previous condition. Without this financial assistance, you might find yourself cutting corners or making ill-advised financial moves to cover the cost, such as dipping into your 401(k).
- It Helps You Replace Damaged or Stolen Goods. Your homeowners insurance policy could help offset the cost of replacing possessions damaged in a naturally occurring incident like a storm or fire. If your home was burglarized or vandalized, the proceeds could cover the cost of replacing stolen property as well. Depending on your policy, you could receive the items’ actual cash value or replacement cost, which is the cost of buying them new.
- Repairs Help Maintain Your Home’s Value. Homebuyers don’t pay top dollar for properties with fire-damaged siding, broken windows, or gaping holes in the roof. Your home insurance payout helps restore your home’s value with minimal out-of-pocket cost.
Cons of Filing a Home Insurance Claim
Filing a claim on your homeowners insurance policy isn’t always a slam dunk. The claims process has some hidden and not-so-hidden pitfalls that could leave you worse off than when you began.
- Your Insurance Premium May Go Up. Although this isn’t guaranteed, your homeowners insurance rates could rise after you file your claim. Exactly how much depends on the type of claim you file, the size of the claim, and your previous claims history. Generally, liability claims bump premiums more than claims related to fire, vandalism, or natural disasters.
- Too Many Claims Mean Your Policy May Not Be Renewed. A rate increase is unwelcome but manageable. A canceled policy is far more serious. If insurers see you as riskier than the typical homeowner, you could have trouble getting coverage on your own. Your lender might need to step in and take out a policy on your behalf — often at a much higher premium than your old policy.
- If You Get a Claim-Free Discount, You Could Lose It. Once you file a home insurance claim, your claims history is no longer spotless. That matters because many home insurance companies offer claim-free discounts for homeowners who never file claims.
When You SHOULD File a Home Insurance Claim
So, you’re thinking about filing a home insurance claim. How can you be sure you’re making the right call?
Use these tests to assess your would-be claim. The more that apply to you, the stronger your position.
Repair or Replacement Costs More Than Your Deductible
This is the first test your would-be claim must pass. If it doesn’t, there’s no point in filing a claim.
Your deductible is the amount you must pay out of pocket before your home insurance kicks in. Your policy documents should clearly specify this amount. It’s either expressed as a flat dollar amount or a percentage of the policy’s total coverage amount.
Dollar amount deductibles typically range from $500 to $2,500, with $1,000 being a common value. Some policies have more than one deductible, depending on the type of property damage. Separate “wind and hail” deductibles are common, for example — and often higher than the standard deductible.
If your home sustained significant damage or loss, your claim value should easily exceed your deductible. For example, if you expect repairs to cost $20,000 and your deductible is $2,000, your insurance company covers $18,000 — 90% of the total cost.
On the other hand, if you expect repairs to cost $3,000, your insurance company only covers $1,000 — 33% of the total cost. That’s a closer call because filing a claim could result in higher home insurance premiums that eventually offset your payout.
The Event Is Covered by Your Policy
Your homeowners insurance company isn’t obligated to provide reimbursement for every type of damage or loss to your home. In fact, while your policy covers a lot, it probably excludes specific events, known as exclusions.
Common exclusions include but aren’t limited to:
- Damage and liability issues caused by poor maintenance
- Insect infestations
- Personal property losses and liability issues caused by power outages or power surges
- Intentional damage caused by a resident
- Damage caused by war or nuclear fallout
- Injuries caused by aggressive dogs
- Issues related to or caused by home-based businesses
- Costs related to building code violations
You may need to purchase separate insurance policies to cover some of these perils. For example, your lender may require you to carry flood insurance if you live in a recognized flood zone.
Other add-on policies are optional but often a good idea. For example, if you run a business out of your home, you should consider carrying business insurance to protect against inventory or equipment losses or damage to your workspace.
You’ve Suffered Significant Loss or Damage
Often, it’s not a close call. If your home is seriously damaged or destroyed in an event that’s covered by your policy, you absolutely should file a homeowners insurance claim. Otherwise, you’ll be on the hook for tens or hundreds of thousands of dollars in repair or replacement costs.
If you have any doubts about the extent of the damage to your home, get a few repair quotes from building contractors in your area. You can also talk to your insurance agent or ask your home insurance company to send out an insurance claims adjuster before you file.
You Haven’t Made a Claim in the Past 5 Years
Approved homeowners insurance claims typically remain on your insurance record for five years after they’re made.
This record is known as the Comprehensive Loss Underwriting Exchange (CLUE) database. When you make a claim, your insurer checks its own records and the CLUE database to see whether you’ve made any other claims in the past five years.
If you have made a claim in the past five years, expect your insurance premiums to spike after your second claim is approved.
For fire, theft, and general liability claims, the increase could amount to 50% or more of your previous premium. A weather-related claim won’t increase your premium quite as much, but you’ll still notice a jump.
When You Should NOT File a Home Insurance Claim
It’s not always worth it to file a home insurance claim.
Certain situations, such as minor damage that costs less to repair than your insurance deductible, all but rule out a claim. Others, such as an active claim history, bring an elevated risk of a denied claim.
If any of these situations apply to you, think twice about filing a home insurance claim.
Repair or Replacement Costs Less Than Your Deductible
If the damage or loss is relatively minor, your deductible could be too high to bother filing a claim. There’s no point in filing a claim — and potentially increasing your policy premiums — if you won’t even receive a payout.
Even if it’s a close call, be mindful of the potential for your premiums to go up after a successful claim. A claim worth $20,000 probably makes sense, but a claim worth $3,000 or $4,000 might actually set you back.
Damage Was Caused by Lack of Maintenance or Normal Wear & Tear
An event that appears to be covered by your policy might not be if the insurance adjuster can argue that it was caused by neglect, poor maintenance, or even normal wear and tear.
For example, let’s say your home loses heat during the winter, causing a water pipe to burst in your ceiling. Homeowners insurance policies generally cover this type of event — if the burst pipe was in good condition to begin with. If the pipe was already heavily corroded, your insurer might blame you for not replacing it sooner. They could deny the claim altogether.
The Event Isn’t Covered by Your Policy
It’s often quite easy to figure out whether a particular event is eligible for home insurance coverage. If your home collapses in an earthquake and your policy specifically rules out claims for earthquake damage, you’re out of luck. Hopefully, you have earthquake insurance.
But closer calls are more common than you’d think. If your resident termite colony worsens an existing foundation issue that eventually spurs a costly repair, your insurer could argue that the entire claim falls under the insect damage exclusion.
When in doubt, it’s worthwhile to begin the claims process anyway. If you don’t like what the insurance adjuster has to say, you can drop the claim without increasing your insurance rates.
Or you can hire a public adjuster — an independent insurance adjuster who can make a stronger case to your insurance company. Public adjusters usually work on contingency, so they only get paid if your claim is successful.
You’ve Made Multiple Claims in the Past 5 Years
The more homeowners insurance claims you make in a five-year period, the more your insurance rates increase after a successful new claim.
Make too many claims in too short a period, and your insurance company could drop you altogether. If you’re unable to find replacement coverage, your lender could take out a policy on your behalf. Expect this lender policy to cost a lot more than your old policy.
All that said, you shouldn’t automatically rule out a new homeowners insurance claim just because you recently got an insurance payout or two. If your home is seriously damaged or destroyed by a covered event, it’s probably still worth it to file. Just be ready to pay higher premiums on the back end.
Some say the best way to save money on homeowners insurance is not to file a claim at all. There’s a grain of truth to that, but don’t take it too literally.
If your home is seriously damaged in an event that’s covered by your policy, a home insurance claim is absolutely warranted. Taking the time to file could save you tens or hundreds of thousands of dollars in out-of-pocket expenses, keeping you on track to reach your long-term financial goals.
Still, it’s always a good idea to take stock of the situation before filing a claim. If your home sustains damage due to an event not covered by your policy or the cost of repairs doesn’t exceed your policy’s deductible, a claim isn’t in the cards. And even if filing a claim would be profitable on paper, it’s worth considering the long-term costs — in the form of higher premiums for years to come.