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When to File a Homeowners Insurance Claim

Brandon Ballenger

You’ve probably seen the photos of New York City during and after Sandy going around. Many are fake, but here’s some reality: The “superstorm” has left 40 people dead in the U.S., several million without power, and will probably lead to a slew of insurance claims.

Even if you weren’t in Sandy’s warpath, chances are disaster will strike in your area someday. We hope it’s later rather than sooner, but all homeowners should understand how to file an insurance claim – and whether they should.

Given the cash you’re forking out for coverage, you might think you’re entitled to file a claim whenever you need something fixed. But if you file more claims than average, you could see your rate go up, or your policy go bye-bye. Yes, insurers might cancel on you for actually using your insurance. Here’s how to avoid the double whammy of natural and insurance disasters…

1. Assess the damage

Is a claim worth filing? First, you have to know roughly how much the damage will cost to repair and your deductible. If the fix is cheaper than your deductible, you should definitely pay out of pocket and avoid the insurer – because you’d be covering the full cost of the repair anyway.

And, counterintuitively, you may want to have a high deductible. Bumping it up from $250 to $1,000 could lower your policy’s cost by up to 30 percent, and over the long run save you money even after paying the higher deductible. (But be careful: Hurricane deductibles can cost thousands more, because they are percentages of a home’s value.)

Even if the repair cost is higher than your deductible, you should weigh the benefits and risks before filing a claim. The Insurance Consumer Advocate Network (ICAN), for example, suggests that you avoid making a claim unless the damage is triple your deductible.

2. Check your history

But wait a minute, how does that make sense? If the repairs cost more than you’re responsible for with the deductible, why would you hesitate?

For the reason we already mentioned – the insurer might drop your coverage or deem you a higher risk, resulting in higher rates. Either way, you’ll end up paying more in the long run. What you’re really doing is weighing the upfront costs (out-of-pocket expense or deductible) against the long-term costs (higher rates or no coverage at all). Which is exactly what the insurer is doing when they decide whether to keep you.

And you don’t start with a clean slate when you go to a different insurer, either. Every time you file a claim, it goes into an industry database called the Comprehensive Loss Underwriting Exchange, or CLUE. Insurers use it a lot like credit companies use your credit score – to evaluate how risky it is to support you.

Just like your credit file, CLUE tracks your history for seven years, and you can pull it for free once per year. Go to LexisNexis for your free annual CLUE report. (You can get a similar report for auto claims for free too.)

ICAN recommends filing no more than two claims in three years.

3. Consider using a public adjuster

Do you want to leave it up to the insurance company to evaluate your claim? They’re going to try to weasel out of any repair they legally can. An independent claims adjuster licensed by the state won’t be looking out for the insurer’s best interest, and is more likely to side with you on what repairs are covered by your policy. They may also be able to recommend trustworthy contractors to do the repair work.

ICAN has a list of recommended public adjusters and you can contact them for other suggestions. Independent adjusters aren’t free, but your insurance policy may cover their fees – if you aren’t sure, check and see.

4. Read your policy

But you should be sure, because you should be familiar with your policy. Take the time to read everything – declarations, riders, limits, exclusions.

You’re probably not going to remember all these details, so it’s important to make notes for yourself about what it all means. You’ll be able to refer back to these years later, and they’re also handy when you want to go comparison shopping for a better policy. Check out the example spreadsheet from our story The 5 Golden Rules of Saving on Insurance and use it as a guide.

And remember that if you don’t understand something, part of the company’s job is to explain it to you. Insurance is complicated, so don’t be afraid to call them and ask – preferably long before anything goes wrong.

Your state’s insurance department may also be able to help, especially when it comes to the law and your rights, which may not be explicitly spelled out in the policy. Some states maintain consumer hotlines or even publish insurance guides to help – here is Washington’s, for example.

5. Document everything

When you call your company’s claims department to get started, you’ll be assigned a claim number and a company insurance adjuster. Get their name and contact info, plus info for the adjuster’s supervisor. Make a habit of getting everyone’s name, number, and email. Timestamp every contact you have with the company. And always write down what you were told to do next.

Hopefully you’ve also already documented everything you own with a home inventory. If not, now’s the time to get started. Check out The Most Important Thing You Can Do Today for a step-by-step guide.

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