When You Should Not Submit a Homeowners Claim

You buy homeowners insurance to cover possible future losses. You want to reduce your risk. But submitting a claim – any claim – is a risk. The insurance companies will punish you for daring to use the policy you paid for. 

Once in a Decade 

Homeowners submit a claim once every 9-10 years. According to the Insurance Information Institute (iii), wind and hail account for the largest share of claims (2.4%). However, fire and lightening caused the most damage. From 2012 to 2016, the average incurred losses were $50,315. Wind and hail average incurred losses were $8,625. Nearly 83% less paid out in claims. 

Drop You Like a Bad Habit 

On average, homeowners and renters pay $1,192 a year for insurance. (Based on 2016 numbers.) That does not include flood insurance and any additional riders you may have for, say, jewelry. You are justified in believing that you should be able to submit a claim for any loss. Unfortunately, if you submit too many claims, your insurance company will drop you like a bad habit. In fact, some insurers will drop you after one claim. 

We Don’t Want You 

Insurance companies, obviously, want to provide insurance to people who have the lowest risk of submitting a claim. If you have filed more than one claim in the last decade, they don’t want you. If the previous owner of your home filed several claims, they don’t want your house. Why? All those claims add up to poor maintenance. If they believe your home is “accident-prone” – due to an old roof or a bad plumbing system – they don’t want to insure it. Or, they will happily insure it for a much higher premium. 

How Do They Know? 

When you’re getting a quote for homeowners insurance, the agent will ask how many claims you’ve submitted in the past. They already know. Insurance companies use one of two databases to track claims: The Comprehensive Loss Underwriting Exchange (CLUE) and the Automated Property Loss Underwriting System (A-PLUS). The database goes back five years. Most insurance companies purge older records. 

Get A Clue 

If you’re buying a home, insist that the seller provide you with a CLUE report. Protect yourself further by having an insurance contingency. This allows you to get out of the contract if you find you can’t insure the property or the premiums are very high. 

Is It Worth It? 

Filing one claim can raise your premium by about 10%. A liability claim is more expensive with a premium increase of 14%. File a second claim within that 9- to 10-year period and you could see your premium jump 20%. The size of the claim has little to do with the premium increase. It’s the act of filing a claim that the insurance company objects to. So, if you’re going to file a claim, make sure it’s worth it. Let’s look at two scenarios: 

1. You pay $1,200 a year for homeowners. You have a water damage claim for $2,000. You have a $500 deductible. The most you’ll get is $1500. Your premium could go up 10% costing $120 more per year. Let’s assume the insurance company doesn’t drop you after one claim. That means you can’t submit another claim for 10 years. Not adjusting for inflation, the additional premium is $1,200. You would net $300 for this claim. 

1. You have a fire that causes $50,000 in damage. This one’s a no-brainer. Of course you file a claim. However, if you had filed the above claim, your insurance company will drop you and it will be hard to find affordable coverage with two claims on your record. 

Aim High 

You should get the highest possible deductible you can afford to lower the premium. Unfortunately, some companies put a cap on the deductible. That’s just one variable that impacts the premium, so shop around. It’s possible that the company with the $1,000 max deductible costs less than the one that allows a $5,000 deductible. 

Independence 

If you are dropped for filing too many claims, work with an independent insurance agent to find affordable coverage. They have access to many different companies. This is more efficient than your calling several companies separately. It helps if you can show that you fixed problems that led to the claims you filed. 

Think Twice 

Think twice before you file small claims on your homeowners policy. It may cost you more in the long run by having to pay higher premiums. Consider your homeowners policy risk mitigation for big events – like a fire. Then, adjust your coverage to reduce your premium. This way you’re not paying for protection you’ll never use. 

 

Resources: 

https://finance.zacks.com/average-homeowner-file-insurance-claims-8387.html 

https://www.uphelp.org/pubs/claim-or-not-claim%E2%80%A6that-question-david-shaffer 

https://claimsmate.com/how-does-filing-a-homeowners-insurance-claim-affect-insurance-policy-rates/ 

https://www.iii.org/fact-statistic/facts-statistics-homeowners-and-renters-insurance 

https://www.nerdwallet.com/blog/insurance/auto-home-insurance-claims-reports/ 

https://www.thebalancesmb.com/clue-report-real-estate-2866520

This Florida Home Inspection Could Save You Thousands

This client likes articles with a lot of facts and figures weaved in.

Just Another Hurricane 

She’d lived through Florida hurricanes before. The news always made a bigger deal out of it than it really was. Bev, her husband, and the kids hunkered down and waited for Irma to pass them by. Not this time. With the hurricane bearing down on them, they high-tailed it out of there. Irma smashed the Florida Keys as a category 4 and sustained 185 MPH winds for 37 hours. Irma caused $50 billion in damage and claimed the lives of nearly 100 souls. Amazingly, they came home to a house with no damage. Bev and her family were indeed lucky. 

Major Savings 

When Bev refinanced her home this year, the lender insisted upon a Wind Mitigation Inspection. Good thing. The inspection was a major factor in saving $3K a year on her home insurance. Coverage for wind damage is the most expensive part of a Florida homeowners policy. After the devastating 2004 hurricane season, insurance companies raised premiums considerably. The largest hurricanes that year ― Charlie , Frances, Ivan, and Jeanne ― resulted in thousands of deaths and tens of billions of dollars in damage. The Florida legislature recognized the impact this was going to have on families. In response, they required insurance companies to give discounts for home features that minimize wind damage. Homeowners who complete a Wind Mitigation Inspection could receive discounts up to 89% on the wind damage portion of their policy. For $70-$100, a homeowner could potentially save thousands. At the very least, they would save enough to cover the cost of the inspection. The inspection and subsequent savings are good for five years. 

Form Matters 

It is important that the licensed inspector use the right form. The 01/12 update to the OIR-B1-1802 Uniform Wind Mitigation Inspection form went into effect February 1, 2012. It supersedes the original 2012 form. The new version is much more comprehensive and gives homeowners the opportunity to realize more savings. For example, high impact windows are now separated out from other building entrances (like your garage) and may provide additional discounts. You’ll want to give the inspector as much documentation as possible, such as permits for shutters and Notice of Acceptance (NOA) for Exterior Opening Protection. These show that you have installed these items and had them approved.  

Risk Reduction 

A licensed Wind Mitigation Inspector must perform the inspection. They are looking for building features that reduce the risk of wind damage. The 01/12 form requires them to provide detailed information about your roof, doors, and windows. 

First, they want to know if your roof was built in compliance with the Florida Building Code. The specific code requirement is based on the age of the house and location. 

Most of the inspection is related to your roof. The shape of the roof matters. A “hip” roof (sloped inward on all four sides) is the most wind-resistant. They care about the material that covers your roof, but how it is attached is critical. Is the roof decking attached to the rafters or trusses below? They also inspect how the trusses or rafters are attached to the walls. The inspector must identify the weakest points in the roof-to-deck and roof-to-wall attachments.  

The Details Matter 

The discounts are definitely in the details. How a roof is attached to the rafters is just one example. The type of nail and the spacing between them determines uplift resistance strength. This minor detail can double the chances of your roof staying on during a hurricane.   

The Wind Mitigation Inspection also examines secondary water resistance (such as a foam barrier) and opening protection. The addition of hurricane shutters and impact-resistant windows and doors can result in higher discounts, depending on the type. 

The one thing you never want to do is list a building feature that you don’t have in order to get a discount. It’s a class one misdemeanor. The state of Florida takes this seriously. 

Worth More Than Discounts 

No doubt that potentially saving thousands is an incentive to get a Wind Mitigation Inspection. But finding ways to protect your property from getting destroyed in a hurricane is even more important. Bev is no longer counting on luck to get her and her family through the next hurricane. Risk mitigation and a full tank of gas go a long way.