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Youve just crunched your fender in a parking lot. Or your washing machine overflowed, flooding your laundry room. Should you call your insurer?
Probably not.
Hard times in the insurance industry, which lost a total of $19 billion between 2000 and 2002, mean companies are quicker to raise premiums or drop coverage entirely when customers make too many claims -- or make the wrong kind of claims.
Monte Regier of Seattle said he lost his Safeco homeowners coverage after reporting some fireplace damage after the areas last earthquake. Regier said he knew he didnt have earthquake coverage and wasnt intending to file a claim, but the nonrenewal notice arrived anyway.
| Always consult your agent and trust his/her advise! |
Unfortunately, theres no cut-and-dried formula for determining when to involve your insurance company and when to keep your problems to yourself. The following are some situations where you should at least think twice before picking up the phone:
The damage is under $1,000
Heres a basic fact about insurance: Its meant to cover the big disasters that could cripple you financially, not the small stuff that just stings a bit.
With that in mind, smart consumers have long kept their home and auto premium costs down by raising their deductibles to $500 or $1,000 and not making claims unless the damage exceeds that limit.
These days, such an approach can not only save money, it can save your coverage. In some cases, it may be better to raid your emergency fund or use a credit card than to risk higher premiums or not having your policy renewed.
This is true even if your state or insurer provides some protection for consumers. In California, for example, an auto insurer cant raise your premiums or drop you unless you were more than 51% responsible for an accident and the damage exceeded $750. And some insurers, including State Farm and USAA, forgive longtime customers by not counting the first at-fault accident.
The real problem with filing a small claim, though, is that it can count against you if you ever need to file a bigger claim.
State Farm, the nations largest homeowners insurer, is dropping customers in some states when they file as few as two claims in as many years. The insurer started cracking down after losing more than $5 billion in 2001 and nearly $3 billion last year.
No (bodily) harm, no foul
Most accidents dont involve injuries. If youre in a one-car mishap or you hit an unoccupied vehicle, you might consider paying for the damage yourself if you can afford the tab. Especially if your driving history is less than pristine -- youve already had an accident or ticket in the last three years -- paying for an accident out-of-pocket may be cheaper than facing the higher premiums that are likely to result.
Not telling your insurance company about an accident youve caused is a risky maneuver, however, if another driver was involved, there were injuries, or you had a passenger. While youre generally not required to make an insurance claim, you probably should notify your insurer of what happened if theres a chance someone else could make a claim on your policy. Insurers dont like to be surprised, and youll want to have your version of events on the record. In a worst-case scenario, your company could use your failure to report the accident as a reason not to pay your defense costs if you are sued.
Your insurer also may find out about the accident if your state or local laws require a police report be filed. (Such reports are usually mandatory if injuries or significant property damage is involved.) Most insurers comb Department of Motor Vehicle records looking for unreported incidents. You can find out if a police report is required by calling your local law enforcement agency.
The damage involves water or mold
Insurers are seriously spooked by a rising number of water damage and mold claims in several states. Mold claims cost insurers $1 billion last year, five times the amount spent in 2000, according to the Insurance Information Institute, a trade group. Consumers who make water damage claims risk losing their coverage, and may even find their homes blackballed, meaning that coverage is unavailable at any price.
Thats because insurers are trying to steer clear of problem properties, using a central database known as the Comprehensive Loss Underwriting Exchange or CLUE. Ninety percent of insurers share claims information through CLUE, and they use the information in the database to decide whether or not to insure a home. Some companies are so sensitive about mold losses that even a single water damage claim on a house is enough for them to refuse coverage.
That does more than make it tough to buy a policy. It can also be a red flag for future buyers. If they have trouble getting a policy because of past claims, you may have a tough time selling your home.
The damage resulted from your neglect
You open your front door, step into your home -- and the floor collapses underneath your feet thanks to termite damage.
This might seem the perfect time to use your insurance. But homeowners policies specifically exclude problems that result from pest infestations, rot and other indications that youve failed to properly maintain your home.
The insurers viewpoint is that you should have detected the termites and had them exterminated long before they could eat through the structure of your home. Likewise, long-term damage from leaking roofs and faucets is usually considered preventable and not covered.
Youre also on the hook if you make a bad problem worse. If a windstorm blows off part of your roof and you leave the hole uncovered, you might lose coverage for contents that were exposed to further damage.
All this doesnt mean you can never use your insurance coverage. But using prudently, especially these days, will ensure its there when you really need it.
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