Natural disasters from blizzards and tornadoes to Hurricane Sandy have been in the news a lot lately. Add to that the more common, everyday occurrences like frozen pipes, leaking appliance water lines, stove and flue fires, and other problems that can occur in your home, and you can easily see why it’s so critical to have good homeowners insurance.
Even with a good policy in place, many homeowners are confused about if and when they should file a claim. Every situation is different, and there are a lot of factors that will enter into your decision. The best person to advise you is your insurance agent, and in some cases you may even need some assistance from your attorney. But here are a few things that might help you better understand this often complicated process.
Is my loss covered?
That’s usually the first thing that a homeowner wants to know. Those occurrences that are covered under your homeowners (or tenants) policy are spelled out in the policy itself, and while they’re not always in plain English, they’re usually not that hard to understand either.
First of all, the policy will generally stipulate that the loss has to be "sudden and accidental," which simply means that it hasn’t been an ongoing problem, and that it wasn’t something you caused deliberately. Say your refrigerator’s ice maker line breaks and floods your kitchen, or a windstorm blows the shingles off your roof. Those are obvious examples of sudden and accidental occurrences, and are typically covered losses.
However, if your ice maker line has been dripping for several months, even if you weren’t aware of it, that’s typically not covered. The same for shingles that fail simply because they’re past their useful lifespan.
Another big coverage issue, especially in the wake of all these natural disasters, is flooding. Most policies exclude groundwater, unless you have specific flood insurance coverage. So what constitutes groundwater? Perhaps the easiest way to look at it is if the water contacted the ground before entering your house (for example, from an overflowing river or a tidal action) it’s almost certainly not covered. Mold is also now excluded from almost every homeowners policy.
What’s a deductible?
Simply put, your deductible is that portion of the loss that you have to pay for. For example, if you have a $1,000 deductible and you suffer a $7,500 loss, the insurance company will pay you $6,500 and you’ll have to make up the difference.
That deductible amount is certainly something that’s going to be a factor in whether you file a claim. Say you have a $1,500 loss. If your deductible is $1,000, it’s probably not going to be worth having a claim on your record just to be able to recover $500 from the insurance company. On the other hand, suppose you have a major fire that does $75,000 worth of damage to your home. The $1,000 you’d have to contribute toward the repairs would certainly be minor, and would be well worth filing a claim for.
What is a "claims history"?
A claims history is a record of claims filed against a particular piece of property, or filed by a particular person, or both. It’s a way for the insurance company to track whether a certain property might be of substandard construction, is being poorly maintained, is in an area that’s prone to certain weather patterns, or is otherwise subject to more damage claims than what the company’s underwriters consider "normal." It’s also a way to track whether an individual might be trying to take advantage of the insurance company by filing an excessive number of claims.
Exactly what a claims history is, how it’s tracked, and how it affects you, your rates and even your future with the company is a matter of great debate. Different insurance companies have different criteria for how they view claim histories, but they definitely take those histories into account when determining rates and renewals.
The potential ramifications of a claims history is also a good reason why you want to know exactly what claims have been filed against a particular piece of property you’re considering purchasing. Be sure to ask for full disclosure of past claims from the seller, and get as much information about those claims as possible.
When in doubt, ask!
You carry homeowners insurance in order to protect yourself against potentially devastating financial losses should your home ever be damaged. So if that should occur, don’t be afraid of the insurance claims process. Before you decide not to file, get some additional information.
Start by looking over your policy, then talk to your insurance agent. Describe the loss, verify coverage and verify your deductible. Then, have a frank and open discussion about your claims history, the company’s policies in that regard, and whether it makes sense to file a claim.