Most people are aware of the possibility of a rate increase when they file a claim. The question is whether this always occurs or only in some cases. Here’s what you need to know about premium increases and how you can avoid them.
Number of Claims Counts
When it comes to premium hikes, the more claims you file the greater the chances of a rate hike. If you file too many claims, the insurance company may even decide not to renew your policy. Insurance companies look poorly on insureds who have high frequency of small claims, as opposed to an insured who had one large claim over a period of 5 or more years.
At-Fault or Not?
Damage caused by your actions almost always leads to a premium increase. However, when damage occurs due to other circumstances whether you’ll pay more isn’t always black and white.
Liability and bodily injury claims often result in premium increases or sometimes even non-renewal of coverage. Liability claims arise out of the insured’s negligence and therefore the insurance companies may penalize you for it.
Insurers always look at your claims record and the circumstances surrounding a claim. If your home’s in a vulnerable area prone to natural disasters such as earthquakes, hurricanes, and flooding you may also pay a higher premium after a claim, even though you had nothing to do with the damage. If you’ve had multiple claims of the same type, for example, multiple water damage claims from a leaking roof, the insurance carrier may be more likely to raise premiums or cancel your coverage. Insurers establish premiums based on risk and more claims mean higher risk.
While the amount an insurer increases premiums varies between companies and states, you can expect an increase of between 10 and 40 percent. You may pay the higher amount for as little as two years or as long as five.
Some insurers offer claims free discounts. If your policy contains this discount then you will likely loose the discount when the policy renews after a claim has been submitted. It usually takes three years of being claims free for an insurer to add the discount back onto your policy. If you have a small claim, you may want to compare the cost of the damages to the amount of the loss free discount you’re receiving to gauge whether or not it is worth submitting a claim.
Additionally, claims remain on your CLUE report for up to seven years. CLUE reports record any insurance claims so the insurance industry can assess risk. If insurers don’t like what they see they may refuse coverage or charge you more.
Understand Your Coverage
Obviously, policyholders won’t want to file a claim unless the expense merits it. Discuss your insurance company’s policies with your agent so you understand the implications should you ever need to file a claim.
A good rule of thumb is to limit claims to catastrophic losses, not minor ones with a threshold of about 1 percent of the value of the property. Your insurance agent can help you balance your deductible and premiums to meet your current financial situation.
When you plan to pay for out-of-pocket expenses for minor events you can set aside funds and enjoy lower premiums which can save you a considerable amount over the years. However, submitting fewer claims is always the best way to save.