To Claim or Not to Claim – That is the Question
Why do we carry insurance?…… A Good Question!
Most people would tell you they have insurance for the peace of mind it provides when a loss occurs. With any significant losses this is certainly true. However, when it comes to smaller losses, people need to rethink their use of insurance …… Specifically, when to turn in a small claim and when not to.
Now, if you ask insurance companies if you should turn in a small loss, they will tell you that they are there to provide coverage when you have a claim, so turn it in. While it is true that they are there to provide coverage, the turning in of a small loss can have very unpleasant repercussions.
When it comes to smaller claims we suggest a different approach which means not turning in every small claim.
But you say…. That is why I pay for insurance!
And it is… but you don’t want to pay more than you have to for that coverage. There are companies who offer accident forgiveness where they will overlook a single claim. But typically that type of coverage is only offered at an additional expense paid throughout the claim free period leading up to a forgiven claim. Given that most of us are not willing to pay more each month for something that may never happen, here is some important information to consider.
Did you know that when you turn in a claim, your insurance company will apply the claim on your record even if you do not receive any compensation for the claim! For example, you have a minor accident in your car where you back into a tree at the neighbors house damaging your bumper. You immediately call your insurance agent and report the incident to make sure you are covered. After getting estimates for the damage, you find out the repair will be $496.00 but your deductible is $500. You will have to pay the $496 yourself since it is less than your deductible but the claim will be put on your insurance record. Now fast forward 6 months and you have a significant accident causing $9,000 of damage to your car and you are at fault. The insurance company takes care of the damage for you, but to your surprise, a few weeks later you receive a letter from your insurance company notifying you of a huge rate increase or worse yet, a notice of cancellation of your policy. The cause of this problem was not the significant accident, it was that you turned in two claims in a short period and one of those was very small.
So how do you avoid this situation?!?!
First…. when you have a smaller loss, you need to get repair estimates BEFORE you turn in the claim to your insurance company. Let me digress for a moment on the importance of understanding how your insurance agent/company handle claims.
While we cannot speak for how the large direct insurance companies like Geico, Progressive, State Farm, etc… are required to operate, we do know that many insurance companies require their direct agents to report the incident immediately upon being notified by you even if you later decide you do not want to turn it in. With an independent agent, like the Howard Webb Agency, you can notify us of the incident and also indicate that you do not want it turned into the insurance company until you have had time to get estimates. You have met all of your obligations but nothing is on your permanent record until YOU decide it should be.
This leads us to the BIG question…. When do you turn in a claim to your insurance company?
There is no magical formula to tell you when to turn in a claim and when not to. Much of that decision rests on how comfortable you are taking care of a minor loss on your own with the understanding that you will save that money many times over in the future with lower premiums and how many losses you have had in the past. Let’s look at a final example. You have an $800 lightning loss to electronics in your home. You have a $500 deductible so do you turn in the claim and get $300 in compensation or do you pay for it yourself? Well if this is the only loss in a 5 year period you are likely ok. But let’s say that a few months later you have a hail/wind loss to your roof of $6,700. this is a large loss and you definitely want to turn this one in. if you had not turned in the small claim a few months back, you would be ok. But you did so the rates go up and up and up and there is nothing that you can do about it until the losses fall off your record.
Tough decisions to be sure, but at least if you understand how the insurance companies operate, you can make the right decision when a loss occurs.
One last note that. It is very well understood that if you have younger (<25) drivers on your auto policy you need to do everything reasonably possible to not turn in any claims unless they are very significant. Why?? If your auto insurance is cancelled by the insurer and you have young drivers on your policy, it may well cost you a small fortune to get new insurance…
As always, give us a call with questions, we are here to help. Good Luck out there.
Howard Webb Insurance and Real Estate
765-644-8847
Leave a Reply
Want to join the discussion?Feel free to contribute!