When you purchase a home, one of the first steps you should take is to call a homeowners insurance company to secure insurance for your home and personal property. Homeowners insurance is extremely important because there are a number of factors that can go wrong, and it can be quite costly to pay for all repairs and replacements out of pocket. Home insurance assures that you are not on your own if something big goes wrong. But, filing a home insurance claim is not a step to take for every minor inconvenience or repair cost.
It is nice to have the peace of mind to know your home is insured should damage occur. Yet, home insurance premiums are not just a pre-payment for every dent, scratch, break, or crack. Filing an insurance claim should be reserved for damage that is catastrophic or extremely expensive. Why is that? Because home insurance rates often increase after a claim is filed. Therefore, it is best to ensure that your claim is worth the increase. It is better to be selective with claims, pay for some repairs out of pocket, and keep a lower rate than file every claim, have damages repaired, but then pay much higher premiums in the long run.
Here’s some information to help you better understand how filing a claim may affect your insurance cost.
Why do insurance rates go up after a claim?
Carrying homeowners insurance is a great way to secure your finances against paying for major repairs or replacements. But homeowners insurance companies need to minimize payouts in order to remain profitable because, after all, they are businesses. Their strategy is to charge you a fee each month for the security of knowing you could capitalize on the coverage if needed, all the while they are betting on the fact that most homeowners do not often need to file claims. Meaning, the risk of insuring your home is low. In fact, some homeowners may never file a claim in their lifetimes. This is how they turn a profit.
But, when homeowners file a valid claim, the company then must make a payout, thus losing the company money. Homeowners who receive a payout are now insured at higher risk because the company has had to cover a claim once, therefore, the likelihood that they would have to again is increased. To counteract this risk, insurance companies often raise these homeowners’ insurance premiums.
How much do homeowners insurance rates increase after filing a claim?
If you have filed a claim that received a payout with your insurance company, you may see a rate increase. How much that increase is, though, depends on a number of factors. A typical rate increase is between 7-10% of your current premium per single claim. It also heavily depends on the type of claim you file and how many claims you have filed in the past. Your first claim may or may not see an increase, but if you have filed multiple claims, it is almost certain that your rate will go up. In cases where you have filed many claims within a matter of years, your rates could increase up to 20%, or perhaps the insurance company could even decide not to renew your contract.
How long does a claim stay on record?
There isn’t a national standard for how long insurance companies must keep claims on record. Therefore, your record length depends on which insurance company you use. Most companies keep claims on file for somewhere between 5 to 7 years. But it is possible you can find a company that will keep claims on record for as low as 3 years.
It is possible, though, that your insurance company will file your claims with a national database where other insurance companies can access your claims history. The Comprehensive Loss Underwriting Exchange (CLUE) is the most common and widely used database, and they keep claims on record for 5 years. This database also has a record attached to your home, therefore, if the previous homeowner had to file a claim, you and your insurance company can see record of this as well. If you are switching companies, a new company will often research your history in this database and offer you rates based on this history.
What type of claims result in a rate increase?
Not every filed claim will result in a rate increase. Some claims are truly random or “bad luck” and won’t likely occur again. But some claims have a higher chance of recurring and, therefore, typically carry a rate increase. These types of claims are significant in nature, such as:
- Water damage
- Theft and burglary
- Liability claims, such as dog bites.
The basic rule of thumb is that if an insurance company had to pay out a large claim within the last 5-7 years, the insured are more of a risk going forward in the future. This is especially true in the case of liability claims, where lawsuits with hefty fees and fines may be involved.
What cannot result in a rate increase?
Due to state regulations, there are some circumstances where insurance companies cannot raise your rates after a claim. For instance, if you call to inquire about filing a claim and choose not to, your insurance company cannot hold that against you. Likewise, if you did file a claim, but for some reason, that claim was denied or did not require a payout and therefore cost the insurance company $0, then the company cannot hold that claim against you and increase rates.
Additionally, weather-related claims do not often see rate increases. Though, depending on where you live, if there is a higher likelihood that a weather event may occur, your rate offer may be higher than the national average from the start.
Finding the Right Homeowners Insurance
Are you in need of homeowners insurance but not sure which company is the right fit for you? Perhaps you have claims on your recent history, or you have special circumstances? Our team at Independent Insurance Brokers Arizona knows Arizona homes and Arizona homeowners, therefore, we are your best choice for finding the right insurance fit for you.
We care about our fellow Arizonans and will take the time to search through over 40 insurance carriers to ensure that your insurance needs are taken care of. Call us today to begin your search for Arizona home insurance.