If you have suffered a valid loss, by all means, file a claim with your insurance carrier. Some homeowners are reluctant to file, no matter how big of a loss their home has sustained. A lot of this hesitant attitude comes from the often recited tale that if you file, you will be cancelled. If you follow that type of reasoning, then you should be asking yourself, “why over a working lifetime will I have contributed, by way of premiums, a total of over $62,000 to my insurance carrier?” This is money you are paying to the insurance company for protection from a loss. Why should you ever be shy about filing a claim? If you happen to be one of those homeowners that bad luck seems to follow and you unfortunately have more than a couple of claims a year, this may cause concern to the insurance company and they may view you as a multiple claimant.
Factors That May Affect Your Home Insurance Premiums
The insurance company industry will never admit to the idea that they selectively review or “red line” neighborhoods for policy cancellation and underwriter reviews. But they do. The insurance companies usually give the following list of reasons why rates vary. You will notice that not once are the words “claims” or “multiple claims” mentioned.
Location: Companies keep records of the claims they’ve had to pay, dividing territories by cities, zip codes, and even neighborhoods, to determine the risk of insuring homes. Residents of areas with traditionally high losses from crime, fires, or natural disasters can expect to pay more than residents of low loss areas.
Fire-Protection Class: How close is your home to the nearest fire station? How well-trained are the firefighters? The closer you are to a fire station and the better the firefighters are, the lower you premiums should be. The Insurance Services Office, an industry advisory organization, assigns every neighborhood in the U.S. a fire-protection class, based on the quality of fire protection and the distance of homes from a water source. For that reason, a rural home miles from a fire station may cost more to insure than an urban home in a higher-crime area located around the corner from a firehouse.
Type of Building: Wooden houses generally cost more to insure than brick houses because brick houses withstand fire and natural damage better. Earthquake insurance, however, costs considerably less for wooden houses because they withstand quakes better than brick houses.
Age of Home: Companies may charge up to 20 percent less to insure new homes than to insure older ones, because older homes may be more susceptible to damage in storms and fires. Outdated building standards and old wiring can also make older homes riskier to insure.
Construction Costs: The cost for building material and labor vary greatly from one part of the country to another. The more it would cost the insurer to repair or rebuild your home, the higher your premium is likely to be.
Number of Units: Companies may charge more to insure apartments or condominiums in large buildings than in small buildings because the risk of fire and other damage and loss increases with the number of occupants. The risk increases proportionately with the number of occupants of any dwelling.
Insurance companies are in business to stay in business. In other words, insurance is not protection sold to you; rather, it is an investment of the money you give to insurance companies as premiums. These investments are how insurance companies make a profit. So it really boils down to a numbers game.
When the insurance company receives a claim, they set up what is known as “reserves.” These reserves are in accordance with the federal and state insurance laws governing the industry and are the money put aside to pay claims. Simply stated, while you are waiting for a settlement, they are investing the money put aside to pay you, and making money off your premiums.
If you file a claim, the reserve amount is calculated against your time as an insured consumer, your premium payment, your risk factor of reoccurring claims and the age of your policy. If you file multiple claims, you can surmise what this does to the insurance evaluation of you as a risk. Is it better to pay your claim and drop you as an insured or is it better to pay your claim and increase your premiums?
When individuals shout “I’m going to sue my insurance company for raising my rates,” remember you, and you alone, will be taking on the big boys. Incidentally, just 5 of America’s largest insurance companies have $2.8 trillion in net assets, as of January 2012!
Things To Do When Filing A Homeowner’s Insurance Claim
- Find your policy. Your homeowner’s insurance policy should be easily accessible. You should have a copy of your policy secured in a safe place away from the residence, such as in a safe deposit box, at your office, or attorney’s office. You should, of course, have a copy of the policy readily available in your home to review and update your coverage and to determine any exclusions to your claim.
- Section “D” of a standard homeowner’s policy allows for temporary living expenses and expenses to cover immediate repairs. Check your policy to confirm your coverage of these items carefully. Remember, with the exception of restoration contractors, most repair persons will demand payment immediately, whereas the restoration contractor should wait for payment from the insurance company to be compensated for the work performed.
Also, be sure to check the amount of your deductible. This is the amount that you must pay to the insurance company before your claim can be paid.
Should You Call Your Agent?
Your agent can give you invaluable information and direction follow after suffering a loss. Your agent is aware of the coverage contained in your policy and can give immediate feedback about the status of your claim. Your agent can also be a friend who you should be able to trust since you have already developed a business relationship. The expertise of most insurance agents lies in their ability to present, detail and make available to you the finest policy coverage to meet your needs. Within the insurance industry, the specialty of marketing and selling does not necessarily require the agent to know about the complexities of the claims office functions. The agent can provide you with forms to initiate your claim and can refer you to the proper claims office in which to contact.
Agents should be true professionals who can handle your needs in purchasing the insurance policy which is right for you, and can be available to support your claim through their interaction with the claims office manager.
Do You Really Need Three Bids?
Gathering three bids is one of the insurance industry’s biggest misnomers. Your policy likely does not call for three bids. Unless you are acting in the capacity of general contractor, where seeking multiple bids may be required in sequencing all the subcontractor work and other professionals contributing to the rebuild or repair of your home, multiple bids are not required in submitting your claim.
You will not be compensated by the insurance company for going out and soliciting multiple bids, nor will it give you any additional leverage in negotiating your claim.
The need to solicit bids will be eliminated by using a qualified restoration contractor. Consider the savings on expenses such as: telephone, employment time, travel time, mileage, paid estimates, and other miscellaneous costs.
The only out of pocket expense you should incur is your policy’s deductible. This usually ranges from $100 to $1,000. Any additional or custom work requested, which exceeds the scope of repairs and expenses approved by the insurance company, will be the responsibility of the homeowners to pay directly to the restoration contractor, so be careful when making suggestions to improve your new home.