It might seem counterintuitive to not use the insurance that you have been paying for. In fact, at first glance you night think I am crazy to say not to submit a claim! However, it sometimes is best not to submit the claim. Let me explain with an example of a client who called the other day.
My client called to tell me that he wanted to submit a homeowner policy claim as he had some tools stolen from his truck when it was parked in front of his home. He said he had about $1500 in tools that were missing. This is a classic “mysterious disappearance” type of claim and insurance companies get them all the time.
Let’s examine what happens:
Deductible - 500
Potential settlement $1,000
We talked a little more and I found that he didn’t have receipts for the tolls that were stolen, so the insurance company would likely want an inventory of the items missing. Then they will need to see receipts for the replacements of the stolen items before they would pay the claim. He mentioned that a couple of the items that were missing, he would probably not replace as he didn’t use them too often. So, his claim might be less than the $1,500 he thought.
Assuming he does replace every tool and the cost is $1500, this is likely what will happen to his home insurance.
The insurance company will likely raise his premium due to the claim. The raise will be up to 3 years (some companies) and would be around 30% and decline over the 3 years.
Home policy premium: $1,000
Adjustment year 1 $ 300 Net Result
Adjustment year 2 $ 250 Settlement $1,000
Adjustment year 3 $ 200 Adjustment - 750
Total adjustments $ 750 Total net $ 250
The other factor that I told him about was that if he has more than 2 claims on his homeowner policy, his current company would not renew his policy.
He made the decision to not file a claim after we went through this. He made the wise decision to “save” his potential claims in the future for larger items and to pay for the tools he needed out of pocket.
If you are considering filing a claim on your policy, make sure you talk to your agent first. If you call the insurance company, they will likely start the claim and it will be reported on your history. Just one more good reason to have an independent agent looking out for your interests.