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.
Concluding thoughts
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?
Never happened to me, but wow that is BS! What is weird, is why not raise her premium like auto insurance? Why just cancel seems odd
Evan,
Yes, it is very odd. Not sure how common, but I have heard of it happening to others with their homeowners policies.
Very strange indeed. You’d think that they would just raise the rates sky high instead of just canceling outright.
We had some mold problems that we called our insurance about last year, and while we didn’t file a claim – I sometimes wonder if that is part of the reason why our rates went up this year despite a drop in home value. I believe I’ll be shopping rates when i get some free time.
@Money Smarts,
Yes, you should shop your rates, just to keep your insurance company honest. We did three years ago (with NO claims) and reduced our total home and auto by over $1,000 a year.
About my daughter’s situation…It just doesn’t make sense. She ended up paying double the premium with her new company, so it seems her previous company could have kept her, raised her rates sky high, and made off like bandits.
The insurance industry really is such a scam it’s inbelievable!!
I wonder if anyone has ever started a not for profit insurance company where they are a little more generous. I understand the need to make money but the profits they post are ridiculous!!!
Infuriating, isn’t it? When you consider how much, over the years, you pay out for homeowner’s insurance, and you can’t use it without incurring a good shafting? Why the heck aren’t these outfits regulated?
One thing I’ve been told is NEVER to make a claim that involves water damage, no matter how much you’re going to have to pay out of pocket. This can make your house unsalable, because once there’s a record of water damage in the house, other insurers will refuse to write a policy for a new buyer.
Studies have shown that the hysteria over mold is misplaced; that in fact a little mildew in the walls does not make many people sick. People confuse their ailments incorrectly with allergies to mold–a VERY tiny percentage of the population is actually affected by this. So, if you get a leak inside a wall, you should pay a handyman out of pocket to come in and clean up anything that’s visible, treat the studs and interior of the drywall with Clorox, be sure no leaks persist, and keep quiet about it.
@ Funny,
Thanks for the heads up on water damage claims. I hadn’t heard that one. My neighbor had an upstairs water line break while she was away for a few days. I don’t know the extent of the damage, but it was substantial. She had work crews there for it seemed like weeks. I would hate to think of having to pay that one out of pocket.
About the mold issue, I too have heard that it is greatly overstated. Hysteria is a good word.
@cna training,
Tell your cousin I said thanks! Sounds like you both have good taste! 🙂
Wow insurance companies can sure be jerks about stuff like this. Its amazing the excuses they can use to get out of their contract with you.
Laura,
Sad but true.
Great article! This information will be a help to my agents as they service their clients with their insurance needs. I have put your blogs in my file for resources. Thanks again.
My comments below are entirely directed at property/casualty insurance.
It’s amazing to me to read all of the comments about what a horrible, mean industry insurance is. I really believe that if most people had a true understanding of Property/Casualty insurance, they might feel differently.
Property insurance was originally invented to help small communities spread the risk of a major loss amongst themselves. It was actually quite socialistic if you think about it. 100 people put $1000 in a pot and if any of their barns or homes burned, there was enough to rebuild. Instead of being out $100,000 you were only out $1000. No one asked for $1500 if a few shingles blew off their roof. The concept is to spread the risk of the worst case scenario amongst so many people that your participation is a few hundred dollars instead of a few hundred thousand.
Today, you’d never be able to buy a house or a car unless you could pay in full. Who will lend you $150,000 if there is no guarantee on that property in the even the house burns down? Oh well, I lost my house, why do I want to bother paying back the loan on a pile of charcoal? If nothing else, insurance allows for people to buy a home for themselves and their families.
Will your policy cover you for a $2000 loss? Of course, but now your probability of having a 2nd claim goes up. Why is that? Because you saw that you could get some money to fix your house/car without having to pay for all of it yourself and are more likely to turn something small in again. It doesn’t necessarily predict that you’ll have another loss, but that if you do, you will turn it in instead of fixing it yourself.
First and foremost, an insurance policy is a legal contract. It does say in black and white what is and is not covered. While reading a lengthy insurance policy is difficult for a layperson, you have an insurance agent who does it for a living and will explain what the policy says to you.
The policy also states what is expected and required both from the insurance company as well as the policy holder. There is potential that by failing to turn in a claim, you could have coverage denied, if the delay in submitting the claim caused damage to be worse that it otherwise would have been. So the original author is right in some facets, if you
The hardest thing for an insurance company to do, is to come up with an “accurate” premium for you specifically. They hire lots of geeky math people called actuaries to study past figures, claims, etc to determine the probability of future claims.
An insurance company has to maintain by law, enough money in reserves to pay regular losses, but also catastrophic losses like tornadoes in Missouri.
If an insurance company charges too much, compared to their competitors, which would result-in theory-in excess profits, many people will buy their insurance somewhere cheaper. If they don’t charge enough, than they operate at a loss, having to tap into reserves and risk lowering their financial stability ratings. So setting premiums is tricky. They may pay their CEOs ridiculous amounts of money, but as companies it is NOT in their best interest to be monstrously profitable. Competition is overwhelming. The price has to be right.
Finally, regarding cancelling your policy or raising your specific premiums. Homeowner’s coverage has a much bigger loss potential/premium charged ratio than auto insurance. That’s really the long and short of it. If you have too many home claims, you might not find anyone who wants to insure you. The claims might not have anythign to do with the owner, but possibly it’s the house itself. Or the geographic region the house is in. Most companies don’t really want to insure homes on the east coast and some don’t at all.
If you have too many auto accidents, there is always someone who will charge you outrageous prices for state minimum coverage until you get your driving act together.
Thanks for taking the time to read my little sermon. I strongly believe in the principles of insurance and that it is far less sinister than you think. Just because you believe insurance should respond a certain way doesn’t mean that it’s really best for everyone overall. I recommend reading your policy. Know what’s covered and what’s not. Most companies use the same policy contract so most are the same from one to the next. There are always options and knowing which ones you need and want is important too. Best wishes and remember, most people would rather pay for insurance for their lives and never need to use it. Have peace of mind knowing if something terrible happens that you’ll be taken care of.
Now I am afraid. We have a home with a sump pump. In March we came home to 3 inches of water in our partially finished basement. Sump pump had failed. Had to have a company come out to dry it out and clean it up. Cost $3000 just for that. We have sump pump coverage and filed a claim. Had never had water before. This past weekend we had a freakish storm of over 4″ of rain in about 2-3 hours and our brand new sump pump along with another pump we had couldn’t keep up. Every house on our street had water in the basement. We did all the clean up ourselves but filed another claim. Now I am worried we will be dropped and not able to get coverage.
Pam,
Now that you have already filed that second claim, it is too late (I think) to not file it. However, I would be in contact with my agent to ask how “at risk” you are after filing two claims within a few months. You might be fine, but good communication if vital.
I never would have believed this but it just happened to my Mother.
She has been in her home for 33 years, has had the same home insurance all those years…Motorist Mutual (they cover her car/home)
For the 1st time in 33 yrs she had a problem in her home and insurance Co agent arrived to eye the damage. Pipe broke in the bathroom caused damage according to the agent, things would be fixed within a few weeks.
Letter arrived, within the envelope was not only a small ck ($1,800.00) but also a cancelation notice.
According to them, since she filed a claim (AFTER 33 YEARS OF PREMIUMS) they decided they prefer not to cover her anymore.
Talk about taking advantage of the elderly……..
If this is the way Mutual Motorist treat their elderly, I can only IMAGINE what the young people do not realize about their own policies….until they have invested 20-30 yrs in a Co that will stab you in the back the minute you need them.
Then they simply keep your premiums and kick you to the curb once you have served out your purpose to them.
Debbie — Unbelievable … except it is true! Did your mother have any difficulty finding other insurance?