Ask Kim
Small Insurance Claims Can Backfire
My bathtub overflowed and caused about $1,000 worth of damage. Should I submit a claim on my homeowners insurance?
By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance
June 18, 2004
My bathtub overflowed and caused about $1,000 worth of damage to my house. Should I submit a claim on my homeowners insurance?
If you do, you could end up high and dry without homeowners insurance.
You'd think that this is exactly what homeowners insurance is there for -- to help you cover the cost when your home is damaged. But after a few tough years financially, insurers are looking for ways to cut back on the money they pay out. That includes dropping customers who make just a few small claims, especially if the claims have anything to do with water damage. Water, and the potential for expensive mold claims down the road, scare the bejesus out of insurers.
These days, making a small claim can backfire if the insurer raises your rate or drops you when your policy is up for renewal. At the very least, your rate may rise if you lose a claims-free discount. Before submitting a claim, find out how much it would cost to repair the damages and don't get the insurer involved for anything costing less than $1,000 or so.
Meanwhile, raise your deductible to at least $1,000 so you can get some benefit from covering small claims yourself. Increasing it from $500 to $1,000 can lower your premium by about 25%, says Alejandra Soto, spokeswoman for the Insurance Information Institute. Also drop add-on coverage that encourages you to make small claims, such as no-deductible riders for jewelry worth $1,000 or less.
For more information about the homeowners insurance business and strategies for lowering your costs, see Protect Yourself From Home Insurers.
