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- I made two homeowners insurance claims in five years: for my roof and for some water damage.
- My insurance company dropped me after the second claim because it considered me “high risk.”
- If I had known, I would have paid out of pocket. I know now that I should have asked more questions.
I have been a homeowner for more than 10 years, and I’ve had my fair share of eye-opening experiences regarding homeownership: one being around homeowners insurance.
Homeowners insurance protects you in the event of damage to your house or property. Like car or other property insurance, when you file an insurance claim, you have to pay a deductible before the insurance pays to fix the damages. As the deductible decreases, the insurance premium increases.
As new homeowners, my husband and I chose a low deductible option of $1,000, which slightly increased our monthly premiums. But we were more than happy to pay the difference if it meant that we would only have to pay $1,000 in expenses in case anything happened.
We didn’t file any insurance claim for the first five years in the house. But, in year five, a hailstorm damaged our roof. So, we filed a claim, paid the $1,000 deductible, and our insurance covered the additional $2,500 for the repairs.
The following year, we filed another claim after our dishwasher water line broke, causing water damage in our house. The insurance company paid close to $20,000 for the repairs but did not renew our policy as they now identified us as high-risk customers.
After that, we had a hard time getting our house insured. So, we shopped around and secured insurance at a premium more than four times higher than our previous policy.
Two years later, we were finally able to secure a policy at a more reasonable rate.
These experiences taught me some important lessons about what to keep in mind when shopping for homeowners insurance.
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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 fully understand what happens when everything is not going well and if you must file an insurance claim.
For example, it wasn’t until renewal that we learned about our insurance company’s policy regarding customers who file two claims during a five-year period.
We learned that once customers file two claims, they are automatically identified as high-risk. Also, depending on how much the insurance company has to spend on the claims, they may decide to either increase your premium or drop your policy.
After that experience, while researching and talking to different companies, we 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, our home insurance company allows us to file up to three claims in five years. We pay a few dollars more a month for that extra cushion. But experience has shown that things happen, and we believe those extra dollars are well worth the peace of mind.
2. Think twice before filing a claim
Had we known the impact of filing those two claims two years in a row, we would have considered paying to fix our roof out of pocket.
After two years of really high premiums, we were able to get home insurance at a decent premium again, but we opted for a higher deductible.
The rule of thumb we use today is any expense under $2,500, which is the amount of our deductible, we cover out of pocket. Our premium is slightly higher, but most importantly, we don’t want to take the chance of filing a claim for a much lower expense and ending up in the same situation again if something else happens.
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3. Set money aside just in case
Another key element is to have that money set aside to cover potential damages at your house or property. Having 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 looking at the potential scenarios and the long-term financial impact.
Home insurance is great as long you don’t file claims often. It’s important to mitigate the risk by reading the fine print, asking the right questions, and thoroughly assessing the situation before filing a claim.
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