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3 Important Questions for Filing a Homeowners Insurance Claim

by Lyle Sprung, Agent for Goosehead Insurance

Should I file an insurance claim on my homeowners insurance policy?

This is one of the most frequent questions I get as an insurance agent. It is a topic that I could write 20,000 words about and still not be able to cover everything. 

Before we get into this, it is important to note that having claims on your property are bad, particularly water claims.  Having multiple claims on your property is REALLY bad. So, the short answer is…it depends.  There are many variables that go into deciding if filing a homeowners insurance claim is the right thing to do.

First, is the damage something that would be covered on their policy? 

As an example, if there was a windstorm that knocked a tree over and that tree fell onto the house and caused various types of damage.  Would that be covered?  It depends.  Damage from wind is a very common coverage on a homeowner’s policy.  So, if the wind was strong enough to knock over the tree, it is likely that the damage caused by the fallen tree would be covered. 

Insurance companies use all kinds of data, including weather reports, as they are processing a claim.  Confirmation of a strong weather event in your area would certainly help to make the claim adjuster’s job a lot easier. 

However, what if the tree was not healthy and the roots were exposed, making it more susceptible to fall during a windstorm?  That would likely be considered deferred maintenance or wear and tear…and then it might not be covered on the home insurance policy. 

It is important to remember that in most cases, whatever has happened that has you thinking about filing a claim would need to be “sudden” and “accidental”.  Wear and tear, deferred maintenance and intentional acts are all grounds to deny paying a claim.

Second, what actually happened? 

Let’s assume that a person has a problem with water damage at their home.  What caused the water damage? 

  • A pipe in the wall suddenly burst and caused damage to your walls, floors and furniture.  It was sudden, it should be covered. 
  • You were filling your bathtub so you can take a nice relaxing bath…you get distracted and the water overflowed out of the tub and came through the ceiling into your kitchen causing damage.  It was accidental, it should be covered. 
  • The hose on the back of your dishwasher breaks and sprays water everywhere causing damage.  It was sudden, it should be covered. 

What about the following scenarios…

  • There was a bad rainstorm and water got into your home and caused damage. 
  • You discover mold somewhere in your home. 
  • You come home from work and find that there is sewage water all over your bathroom that has caused damage. 

Are these things covered?  It depends. 

A bad rainstorm was sudden, so that should be covered, right?  Not so fast.  Water damage on a home policy should cover the earlier examples I listed (busted pipe, overflow of your tub or a broken hose) but it doesn’t cover water related to natural events.   You need separate coverage for flood.

Flood and water damage are 2 different things, although we are very accustomed to saying something along the lines of “a pipe burst in my home and flooded my house”.  It would be more accurate to say “a pipe burst in my home and caused water damage”.  Coverage for flood is an optional coverage you can add on some home policies (depends on the carrier) but more often than not, you need to buy separate coverage for flood. 

How about the mold issue?  There was no way I could see what was happening behind the walls so this should be covered, right?  Again, not so fast.  The presence of mold means that moisture has been present for some period of time.  If it was present for some period of time then it wasn’t “sudden” and would typically not be covered. As with flood, many carriers have an option to add limited mold coverage.

I am sure that the sewage water problem would be covered, right?  It was sudden AND accidental.  It depends.  Do you have a coverage called back-up sewer and drain on your policy?  If you do, you will have coverage for this issue.  If you don’t, then once again, you are on your own to fix this problem.

Third, how much will it cost to fix?

This is a key piece of information in deciding if you are going filing a homeowners insurance claim, along with the deductible on your policy. In a training class many years ago, someone once said to me, “Insurance shouldn’t be used to solve a problem that is going to ruin your day.  It should be used for things that will ruin your life.”

Now that might seem a little drastic, but let me tell you what that means.

If we are discussing a problem that is going to cost anything $7500 or less, my recommendation is going to be that you should handle that expense without filing a claim, with the only caveat being that a person can pay this amount without experiencing extreme financial hardship.  While $7500 is a lot of money, this would be considered a small claim in the insurance world.  It is also not really $7500 because you have to consider your deductible.  It is very common for someone to have a deductible on their home policy that ranges from $1000 to $5000, with $2500 being among the most common amount. 

So, if a person has a $2500 deductible, then they are responsible for that amount before insurance would cover anything.  So, on a $7500 problem, they would be “saving” $5000 by filing a claim.  Savings is in quotation marks for a reason, which I will get into shortly. 

If the claim is more than $7500, then we need to start having a different discussion.  If the client has the financial capacity to pay a larger amount ($8000-$15,000) without filing a claim, then that would still be my recommendation.  If they don’t have the financial capacity to handle a larger amount out of pocket, then it would make sense to file a claim. 

The issue here is…what if there is a 2nd water claim?  If there is a 2nd claim, the first thing that will happen will be that you will instantaneously receive a letter from your current carrier letting you know that they are dropping your coverage.  2 water claims in a 5 year period is the insurance kiss of death. 

Here is a real life example:  About 6 years ago, I had a client reach out to me because he was being dropped by his current carrier.  He had 2 water claims in a 4 month time period.  The most recent claim (the 2nd one) was a $65,000 claim.  Clearly, for that amount, It was appropriate to file a claim.  The 1st claim? The payout was $305.  That is not a typo.  After the deductible, the insurance company paid out $305.  Not sure why this client would have filed a claim for such a small amount.

Actually, that is not true.  I know why. 

He didn’t have a trusted agent to offer guidance. His carrier, who insured him for 33 years, dropped him immediately.

Let me tell you what happened next. Claims on the property will show up on the reports that the insurance companies subscribe to when quotes are run.  Claims will follow the property.  So, as I am trying to find new coverage for this client, I am getting decline after decline due to the claims history on the property.  Eventually, I find him coverage with a specialty carrier who would offer coverage despite the claims on the property. 

In this case, “specialty” translates into “more expensive”.  Almost 3 times more expensive to be exact.  This client was paying about $2400 a year for his home policy.  Now he was paying $6900 a year. 

Since his home policy was dropped, he lost his home/auto bundle discount with his carrier and his auto went up about 15%.  Seeing that these 2 claims happened in a short time period, it meant that he needed to stay on this specialty home policy for at least 4 years and not have any additional claims so that the claims would “age off” the report after 5 years and not be relevant anymore.  

Remember those quotation marks?  The $305 in savings from the first claim wound up costing this client much more than that.  By my estimate, the client had spent almost $25,000 more for insurance over the following 4 years than he would have had to pay if he never filed that tiny claim.

Here are my suggestions on how to navigate claims.

If you don’t have a trusted agent, get a trusted agent.  You don’t know if the person on the other end of that 800 number has been there for 5 years or 5 minutes.  They don’t know you or your situation.

If you have a problem…call your trusted agent FIRST before you call anyone else.  An inquiry call to an insurance carrier can actually track as a claim and cause eligibility issues.

I once had a client that called his insurance company to inquire if a rat infestation is something that would be covered by insurance.  He was told that it would not be covered and he took care of the problem on his own.  He only found out it tracked as a claim on his property when I was running quotes for him on his property and we ran into eligibility issues due to “claims history”. 

Your agent will also typically have trusted vendors that they can recommend to resolve the issue or at least get the price estimate needed to determine if a claim should be filed.

Determine what the maximum amount you would be willing and able to pay before you would file a claim.  Once you pick that number, raise your home deductible to something near that amount.  So, if your number was $10,000 then raise your home deductible to $7500.  The higher deductible will allow you to save money on your insurance premium.  Why have a deductible of $1000 or $2500 if you know that you won’t be filing a homeowners insurance claim unless it is $10,000 or more?

As a final note of advice … Have your agent go over the coverages on your policy, including optional coverages so you can make an informed decision about your policy.  Not all policies are the same. Not all insurance carriers are the same.  Having a trusted agent matters … probably more than you realize.

Contact Lyle Sprung to learn more!

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