My client's homeowner's insurance dropped them after they filed two claims in 5 years, and it taught them three important lessons.
True Case Scenario:
My clients made two homeowners insurance claims for their roof and some water damage in five years.
Their insurance company dropped them after the second claim because it considered me "high risk."
They now claim that they would have paid out of pocket if they had known, and they know that they should have asked more questions.
My clients have been homeowners for more than ten years and have had their fair share of eye-opening experiences regarding homeownership, one of which was regarding homeowners insurance.
Homeowners insurance protects you in the event of damage to your house or property. Like a car or other property insurance, when you file an insurance claim, you must pay a deductible before the insurance pays to fix the damages. As the deductible decreases, the insurance premium increases.
As new homeowners, most homeowners choose a low deductible option of $1,000, which slightly reduces the monthly premiums. Again, most homeowners are more than happy to pay the difference if they only have to pay $1,000 in expenses if anything happens.
Our case study indicates that my clients didn't file insurance claims in their house for the first five years. But, in year five, a hailstorm damaged their roof. So, they filed a claim and paid the $1,000 deductible, and their insurance covered the additional $2,500 for the repairs.
The following year, they filed another claim after their dishwasher water line broke, causing water damage to their house. The insurance company paid nearly $20,000 for the repairs but did not renew our policy as they identified us as high-risk customers.
After that, you guessed it, they had a hard time getting their home insured. So, they shopped for home insurance quotes and secured insurance at a premium over four times higher than their previous policy.
Two years later, they could finally secure a policy at a more reasonable rate.
These experiences taught them important lessons about what to remember when shopping for homeowners insurance.
1. Understand what can happen if you file multiple claims
When shopping for insurance, take extra time to read the fine print and ask the right questions to understand what happens when everything is not going well entirely and if you must file an insurance claim.
For example, it wasn't until renewal that they learned about their insurance company's policy regarding customers who file two claims in five years.
They learned that customers are automatically identified as high-risk once they file two claims. Depending on how much the insurance company has to spend on the claims, it may either increase your premium or drop your policy.
After that experience, while researching and talking to different companies, they realized that many insurance companies have the same policy. Therefore, understanding a potential insurance company's policy when processing claims and how it could affect you helps you make better-informed decisions.
Today, their home insurance company allows them to file up to three claims in five years. We pay a few dollars more a month for that extra cushion. However, experience has shown that things happen, and we believe those additional dollars are worth the peace of mind.
2. Think twice before filing a claim
Had they known the impact of filing those two claims two years in a row, they would have considered paying to fix their roof out of pocket.
After two years of really high premiums, they got home insurance at a decent premium again, but they opted for a higher deductible.
Today's rule of thumb is that they pay out of pocket for any expense under $2,500, which is the amount of our deductible. Their premium is slightly higher, but most importantly, they don't want to risk filing a claim for a much lower expense and ending up in the same situation again if something else happens.
3. Set money aside just in case
Another critical element is having the money to cover potential damages to your house or property. With that cushion, you can assess whether it makes sense to go through insurance or pay out of pocket if something happens. Having the cash available allows you to decide what would be best after considering the potential scenarios and the long-term financial impact.
Home insurance is great as long you don't file claims often. It's essential to mitigate the risk by reading the fine print, asking the right questions, and thoroughly assessing the situation before filing a claim. When in doubt, call your trusted insurance agent to discuss your homeowner's options and, most importantly, whether you have the correct coverages to protect you when needed.
