Filing a home insurance claim can provide financial aid for home repairs or replacing belongings, but it often involves paying a deductible and could lead to an increased premium. Weigh the pros and cons of filing a home insurance claim to make sure you're doing it for appropriate reasons. After all, frequent claims can lead to much higher premiums, and filing a claim can be costly.
Pros and Cons of Filing a Homeowners Insurance Claim
Updated: November 21, 2024
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Key Takeaways
Filing a homeowners insurance claim helps cover repair and replacement costs and pays for temporary housing during home restoration.
Frequent claims can lead to increased premiums, policy non-renewal and coverage gaps for certain types of damage.
File a claim when repair costs exceed your deductible, for extensive covered damage and with appropriate additional coverage for specific perils.
Pros of Filing an Insurance Claim
By filing a homeowners insurance claim, you can get a reprieve from the costs of unexpected damages or losses to your home and belongings. Filing an insurance claim can be crucial in restoring your home to its pre-loss condition without you having to bear the full financial burden. Explore a few key benefits of filing a homeowners insurance below:
Reimburses the Cost of Repairs & Replacements
When disaster strikes and your home or personal belongings suffer damage, filing a homeowners insurance claim can be a financial lifesaver. If your home is damaged or your personal property is destroyed, you can receive funds to cover the costs of necessary repairs or replacements, ensuring that you can swiftly restore your home to its pre-loss condition and minimizing your financial burden.
Covers Temporary Housing
In the aftermath of a disaster, homeowners insurance can cover the cost of temporary housing or additional living expenses when your home becomes uninhabitable due to damage or repairs. This means you and your family won't be left homeless and scrambling for accommodation. Instead, you can find a temporary place to stay while your insurance policy ensures you have a roof over your head and can maintain your lifestyle.
Cons of Filing a Homeowners Insurance Claim
Homeowners insurance protects your home and finances, but filing a claim has to be done for the right reasons, as it can also lead to an increase in the premium you pay. It's important to balance using your insurance when needed and being mindful of its potential impact on your policy and premiums. Here are some factors to consider:
Requires Paying Deductible
Filing a homeowners insurance claim typically involves paying a deductible. You must cover this initial out-of-pocket amount before your insurance kicks in. While deductibles help keep insurance affordable, it's an expense you'll need to consider when filing a claim. You must have the funds available to meet your deductible — without them, your claim may not be processed.
May Increase Premiums
One consideration when filing a claim is the potential for increased premiums. While insurance is generally designed to protect against financial loss, frequent claims can raise red flags with your insurer. They may view you as a higher risk, resulting in premium hikes.
When to File a Homeowners Insurance Claim
Knowing when to file a homeowners insurance claim allows you to receive the financial protection you need without incurring unnecessary expenses or complications and can help you navigate the process effectively. Below are key situations where filing a claim makes sense.
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When Repair Costs Are Greater Than Your Deductible
You should consider filing a claim when the cost of repairing or replacing the damage exceeds your deductible or the initial amount you must pay out of pocket. If the repair costs significantly surpass this amount, it's a good indicator that involving your insurance is the right course of action.
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When The Damage Is Covered Under Your Policy
Filing a claim is advisable when the damage to your property is substantial and falls within the scope of coverage outlined in your policy. This might include scenarios like severe storm damage, fire or vandalism. Ensure that the type of damage aligns with your policy's terms and conditions to maximize your chances of approval.
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When You Have Additional Coverage to Pay for Certain Damages
If you have additional coverage, such as flood or earthquake insurance, you should file a claim when these specific events cause damage to your property. These types of natural disasters are often not covered under standard homeowners insurance policies, so having the appropriate additional coverage is essential.
When Not to File a Homeowners Insurance Claim
While homeowners insurance is a valuable safety net, there are situations where it's best to avoid filing a claim, such as if the cost of repairs is lower than your deductible. Understanding when not to initiate a claim can help you prevent potential consequences like increased premiums or policy non-renewal. Below are key scenarios in which refraining from filing a homeowners insurance claim is advisable:
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When the Repair Costs Are Minimal
It's better to pay for minor repairs or damages out of pocket if they are lower than your deductible. Filing a claim for small expenses can lead to increased premiums, ultimately costing you more in the long run. In these cases, it's wiser to handle the repairs on your own.
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When You Have Multiple Claims
Having several claims in a short period can have adverse consequences. Frequent claims can even result in your insurer choosing not to renew your policy if they find that you have filed a lot of small claims in the past. Choose what to file a claim for wisely.
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When Your Policy Doesn’t Cover the Damage
Not all perils are covered by standard homeowners insurance policies. For instance, flooding and earthquakes often require additional coverage. If the damage is caused by an event not covered by your policy, filing a claim would be futile and could negatively affect your claims history. In such cases, it's better to seek alternative solutions for addressing the damage.
How to File a Homeowners Insurance Claim
Filing a homeowners insurance claim simply involves documentation and filling out a claim form. By understanding how to file a claim ahead of time, you can significantly reduce the stress and confusion often associated with navigating insurance processes during difficult times. Take a look at a step-by-step guide on filing a home insurance claim:
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Contact Your Insurance Provider
Begin by reaching out to your insurance company as soon as possible after an incident. You can typically find its contact information on your policy documents or its website. Be prepared to provide your policy number and a brief description of the damage or loss.
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Document the Damage
Take photos or videos of the damage to your property and belongings. This visual evidence will be crucial in supporting your claim. Make sure to document all affected areas thoroughly and include supporting documents such as receipts, repair estimates and other documents.
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File a Police Report (If Necessary)
In cases of theft, vandalism or criminal activity, it's essential to file a police report and obtain a copy. This report will serve as additional evidence for your claim.
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Complete the Claim Form
Your insurer usually provides a claim form to fill out. Ensure that you provide accurate and detailed information about the incident, including the date, time and description of what occurred.
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Cooperate With the Claims Adjuster
It's common for your insurance company to send a claims adjuster to evaluate the damage. Work closely with them, grant them access to the affected areas and supply any necessary documents they might need. The adjuster's assessment is key in deciding the resolution of your insurance claim.
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Review the Claim Settlement
Once your claim has been processed, your insurer will provide you with a settlement offer. Review it carefully to ensure that it adequately covers the damage and losses you've incurred. If you're satisfied with the settlement offer, you can accept it and your insurer will proceed with the payment. If you believe the offer is insufficient, you have the option to negotiate with your insurer to reach a fair resolution.
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Receive the Payment and Complete the Repairs
Once you've agreed on the payout, your home insurer will disburse funds to cover your losses, repairs or replacements as outlined in the settlement. How home insurance is paid varies from provider to provider, as you can receive payment or have it sent directly to the contractor.
Use the funds to repair or replace the damaged or lost properties. Maintain records of these expenses, as your insurer needs them for verification.
By following this guide to filing home insurance claims and staying organized throughout the process, you can ensure a smoother experience and a timely resolution to your claim.
FAQ About Filing a Homeowners Insurance Claim
Understanding the pros and cons of filing a home insurance claim allows you to make informed decisions that balance the financial implications, like potential premium increases, with the need for coverage. Explore a few key tips to filing a home insurance claim through our answers to some of the most frequently asked questions.
Is it worth claiming on home insurance?
Whether it's worth claiming on your home insurance depends on the extent of the damage and the cost of repairs compared to your deductible. For minor damages below the deductible threshold, it may be more cost-effective to cover the expenses yourself to avoid potential premium increases.
Should I file a claim every time my home or belongings are damaged?
It's not advisable to file a claim for every minor instance of damage. Frequent claims can lead to increased premiums and even policy non-renewal. Reserve filing a claim for significant losses that exceed your deductible and are covered by your policy.
How long do homeowners insurance claims stay on your record?
Home insurance claims stay on your record for at least five to seven years, but whether it stays on your record depends on the type of claim and its severity.
Do I have to pay taxes on a home insurance payout?
Generally speaking, homeowners insurance payouts are tax-free. These payouts are not considered taxable income, but rather compensation for losses or damages.
About Mark Fitzpatrick
Mark Fitzpatrick is a Licensed Property and Casualty Insurance Producer and MoneyGeek's Head of Insurance. He has analyzed the insurance market for over five years, conducting original research and creating personalized content for every kind of buyer. He has been quoted in several insurance-related publications, including CNBC, NBC News and Mashable.
Fitzpatrick earned a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his knowledge of economics and insurance to bring transparency around financial topics and help others feel confident in their money moves.