Our daughter Jaime recently called to tell us, through angry tears, that she learned from her mortgage company that her homeowner’s insurance policy had been cancelled.
Evidently, when the mortgage holder tried to make a payment from Jaime’s escrow account, the insurance company couldn’t accept it because Jaime was no longer insured. After cooling down and gaining her composure, she contacted her insurance company who affirmed the cancellation. The reason? She had filed three claims over a nine year period (nine years ago, seven years ago and eighteen months ago). “Why”, she asked, “didn’t anyone caution me that I was about to be dropped? And, pray tell, why didn’t you tell me when you dropped me?”
“We sent you a cancellation letter before the policy was dropped. It was returned to us as ‘non-deliverable’”, the agent stated coolly. “That is all we are required to do. If you didn’t get it, it is not our fault.” (Note from Joe: this makes no sense because Jaime still lives in the same “insured” house she had been paying premiums on all those years.)
With her mortgage holder breathing down her neck, Jaime contacted several insurance firms before finding one who agreed to a policy which cost twice as much as her previous one. She feels betrayed by her former company and unwilling to trust her new one.
Thus the reason for this post: what can we learn from this nightmare?
Should you even file the insurance claim?
“Of course!” is the logical answer. “Why should I pay for insurance if I am not going to use it?” Yes, that is good logic, but who says insurance companies are logical? The stark truth is that you may be better off paying the claim yourself.
Here are some guidelines:
When to file the insurance claim
- If it is a big one
When the size of the claim is small enough that you can handle it out of pocket, you probably should. However, when the big ones come, go ahead and file. This is why you bought the insurance. Tricky challenge: define what “big” is for you.
- If you have a first time forgiveness policy
Some policies offer a one time freebie, meaning that you will not be penalized by filing that claim. In many cases, this provision only applies if you have been accident free for a number of years.
- If you haven’t had any recent claims
This is similar to the first time forgiveness policy, but it is a good idea to communicate with your agent before filing the claim. At this point, you need to be coy about the incident. Why? Because some agents are required to note in your file that you have had an incident even if you don’t file a claim. Ask hypothetically, as in “if I were to have an accident, would filing a claim raise my future premiums?”
- If someone was injured
If there is a chance that someone was injured in the accident, go ahead and file in order to protect yourself from a possible injury lawsuit.
When not to file the insurance claim
- If the claim amount is close to your deductible amount
There is no need to get flagged by your insurance carrier if you are going to be paying most or all of your loss out of pocket anyway.
- If you have had moving violations
Some auto insurers consider your driving violations as good cause to raise your premiums or drop you. Adding a claim to these violations will likely kick off some punitive action.
- If you have had other claims
Filing several claims in a short time frame is asking for trouble. You will certainly get your premiums bumped up and you may get canceled (although, as previously noted, my daughter’s three claims were spread over a ten year period.)
Some helpful hints on filing insurance claims
- Learn ahead of time
Talk to your agent now, while there are no claims pending, to learn the company’s policy on raising premiums and canceling policies. Ask your agent to explain the surcharge schedule, which shows how much rates will increase after a claim. The agent is more likely to be forthcoming when no money is at stake. Am I saying that agents may misrepresent those policies when there IS money on the line? Yes.
- Consider raising your deductibles
The larger deductible you can afford, the lower your premiums will be and the less likelihood you will file a “minor” claim, triggering a rate hike or cancellation. Hint: make sure you have a big enough emergency fund to cover those deductibles. Consider $1,000 on auto and $2,500 on homeowners.
- Get a CLUE
What is CLUE? Comprehensive Loss Underwriting Exchange. This quote from their website explains their services: “The C.L.U.E. Personal Property report provides a seven year history of losses associated with an individual and his/her personal property. The following data will be identified for each loss: date of loss, loss type, and amount paid along with general information such as policy number, claim number and insurance company name.
The C.L.U.E. Auto report provides a seven year history of automobile insurance losses associated with an individual. The following data will be identified for each loss: date of loss, loss type, and amount paid along with general information such as policy number, claim number and insurance company name.”
Simply put, you have free access to the same accident and claim history your insurance carrier has. Knowledge is power, so get that knowledge.
Insurance is aptly defined as a transferring risk. Because most of us don’t have the bankroll to finance our own risks, we need insurance. But the best plan for the long run is to maintain a big enough emergency fund to allow you to raise those deductibles, keep premiums down and file only big claims.
Have you ever had your insurance policy canceled? Were you properly notified ahead of time? What kind of hassle did you incur getting new insurance? Did you end up changing insurance companies?