With homeowners insurance premiums rising, many are taking care to do what they can to save money. For some, that means increasing their deductible. When a policyholder increases the amount for which they are responsible when submitting a claim, insurers acknowledge that adjustment by lowering the premium.
Increasing your deductible is only helpful if you are able to handle the cost of what might have been a claim by paying out of pocket.
If you are able to pay for repairs out of pocket, that raises the question of when should a homeowner submit a claim? How do insurance companies treat claims—and how do claims affect your rates?
How much does insurance increase after a claim?
The average increase to homeowners insurance after a claim is between 7% to 10%. That’s an average, however—increases can be much higher, or barely register at all.
That said, there are many factors that go into the calculation of a home insurance premium, including risk type. The type of claim can make a difference in the amount your premium will increase after a claim—if it increases at all.
One of the things insurers consider is how likely it is that the homeowner would need to file a similar claim again at a later date. Burglaries can indicate a neighborhood with a rising crime rate, which could lead to more claims. Since this could happen again, you might see a significant increase in your homeowners insurance premium.
On the other hand, if your laptop is stolen out of your vehicle when it’s parked in front of a restaurant (which is a homeowners insurance property claim, not a vehicle insurance claim!), that was likely a crime of opportunity and unlikely to happen again—and, there’s typically a sublimit set so the amount of this type of loss is usually small. So, your homeowners insurance premium might only go up a small amount, if at all.
Are all claims treated equally in terms of insurance rates?
There are many factors that go into determining what types of risks a homeowner might encounter. Claims that are likely to be repeated are of higher risk, so that is factored into premium costs.
Insurers use a record of historical losses to underwrite policies. This database, called the Comprehensive Loss Underwriting Exchange (CLUE), provides a record of insurance claims going back five to seven years. A home with a prior history of a damage claim will likely cost more to insure—and, if there’s a subsequent loss, the rates will probably increase substantially. Why? Because this home’s location has proven to contribute to its claims history. It is riskier to insure, and that will be reflected in its insurance rates.
More expensive claims are more likely to result in higher increases, especially liability claims. This is one reason why some insurers may decide not to renew a homeowner’s policy after a dog bite claim.
What types of claims can raise homeowners insurance premiums?
Some types of claims are more likely than others to increase homeowners insurance premiums. Claims for water damage are often followed by an increase to premium costs, because there are historical patterns that show water claims frequently lead to other claims.
The same is true for liability claims—additional claims can follow, making this a significant risk for insurers. This can be especially true if negligence was involved in the initial claim, such as a failure to clear snow and ice leading to a guest falling, or not securing a gate to a pool, leading to an injury.
The top types of claims that are likely to lead to a raise in your homeowners insurance premium are:
- Dog bites
- Water damage
- Accidental fires
- Liability claims
Theft claims can sometimes lead to an increase, but other factors might be considered. If there has been an increase in thefts in your zip code, that will reflect a changed level of risk and a higher premium.
When does it make sense not to file a claim?
The first thing you should consider before filing a claim is your deductible. If your homeowners insurance deductible is $2,500 and the damage incurred is $1,700, you wouldn’t be eligible to file a claim anyway—so that’s the first example of when it is better to not file a claim.
Even if the cost to repair is more than your deductible—meaning you are eligible to file a claim—it still might not be worth it to file. If you’ve had a water leak that will take $3,500 to clean up, and your deductible is $2,500, your claim payout will be $1,000. We’ve already established that water damage is one of the areas of concern for insurers, so your insurance premium will likely go up, and it could remain higher for between five to seven years even if you don’t make another claim. In this situation, the $1,000 you would receive as a payout from the claim might be a wash from the premium increases that would result as part of making the claim.
A general rule of thumb is that homeowners should try to avoid filing a claim for a loss that is less than double the amount of your deductible.
Do rates always rise after making a claim?
Insurance is regulated at the state level, and that makes a difference too. Some states restrict the conditions under which an insurer is permitted to increase premiums after a claim is made. Consumer protection laws can prohibit an insurer from raising rates for a claim that is denied, for example. In some states, insurers cannot increase premiums for claims that are the result of a natural disaster.
The most important step any homeowner can take is to know and understand what is in their homeowners insurance policy. If you’re unsure about what your policy covers or what your deductible is, contact the experts at Rate Insurance. They can recommend the right policy and a deductible that makes sense for you. With access to top-rated insurers, they can find coverage that meets your needs for the best possible premium price.
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