Understanding How Filing an Insurance Claim Can Raise Rates

11/25/2021 (Permalink)

File an insurance claim only when it is essential to avoid increased rates.

Home insurance is often necessary, and most homeowners do not mind paying the premiums because having a policy gives them peace of mind. However, while an insurance policy is welcome after experiencing a home disaster, like water damage, most people worry about filing an insurance claim because they are unsure how it will affect their premiums. While it might seem unfair, any mitigation professional in Ogden, UT, will tell you that you need to understand a few things before making a claim:

• Claims are necessary for financial protection
• Claims can affect rates regardless of circumstances
• Claims are advisable for large-scale losses

Understand the Rates of Filling Out an Insurance Claim.

Why an Insurance Claim Can Result in Rate Increases

When you signup with an insurance company, your premiums or rates are tied to your level of risk. Unfortunately, filing a claim increases your risks to the insurance company, regardless of the reason behind the claim. For example, your claim might be for a home flood resulting from a sudden pipe break. While your insurance might cover the damage, the expense still represents a loss and a risk to the insurer, meaning when it comes time to reassess your rates, your premiums might go up.

Essentially, your insurer performs a cost-benefit analysis every time they refigure your premiums. There is typically no reason for rates to climb if you make it through the year without filing a claim or using your policy. However, if you used your policy multiple times in a year, your account costs the insurer more than expected, meaning they will recover their losses by increasing your premiums.

Preventing Rate Hikes Because of Claims

The obvious solution to preventing rate hikes is never to file a claim, but this solution is impractical. Sometimes, you will need to make a claim because making the repairs alone is not financially possible. The key is to handle minor issues on your own whenever possible, limiting the number of times you use your policy.

If you experience damage that is not costly to repair, or if something does not even meet the deductible for your policy, then pay for it out of pocket. By paying for minimal expenses out of pocket, you can protect your insurance rates.

Rate Hike Circumstances

While your rates can increase regardless of the cause, some situations are more likely to result in an increase than others. For instance, if you file a claim and during the course of the investigation it is determined that you were at fault for the damage, your rates will typically always increase.

However, if you are not at fault and rarely use your policy, the insurer may or may not raise your rates. The primary takeaway is only to use your policy when it is absolutely necessary.

An insurance claim can lead to increased rates regardless of your responsibility or the extent of the damage to your property. To protect your current rates, you should only file claims when it is essential. Contact your insurance representative if you want to know how your rates might be affected by making a claim.