Save It for a Rainy Day: When should I submit a claim?

“Should I turn this claim into my insurance company?”

At least one time each day, our team gets asked this question. There isn’t a simple answer, either. One more reason why you want a local professional to review your situation with you rather than a person in a call center halfway across the country. But really, there is not a single correct answer. The information contained in this post is simply a guide to get you started. Always consult your Insurance Professional when it comes to your personal policy.

Because each situation is unique, we have to speak in broad/general terms. Here, let’s focus in on a basic Homeowners policy. Not every Homeowners policy is built the same way. It is extremely important that you review your own policy and its specific contractual language in order to know what coverage your policy provides and how it will react to a covered loss. It is just as important to have a trusted advisor that your can contact to discuss your policy . Don’t fly blind.

For purposes of this explainer, let’s focus in on Homeowners Policies; we’ll stick with traditional single-family homes (i.e.: Dwellings and Townhomes).

Much of this discussion depends upon your Homeowners Deductible. A deductible is the amount that an insurer will deduct from the loss prior to paying up to the policy limits. The insured is typically responsible for paying this portion of a loss.

Once upon a time, Homeowners Deductibles were as low as $25 or $50 per occurrence. They moved to $100 and $250. For the last 10 to 15 years, $500 has been  typical on many Homeowners policies. Now, many Homeowners Insurance Carriers are mandating a $1000 (you read that right, one-thousand) Deductible. This makes sense, since a Homeowners Insurance policy is not a maintenance policy or a home warranty. Homeowners Insurance is intended to protect against catastrophic losses. Catastrophic losses are typically those that are sudden, accidental, and unexpected. You’ll know a catastrophic loss when you see one. It’s a severe storm with strong wind and heavy rains, it’s an electrical fire, or lightning strike.

So, when you have one of these sudden, accidental, and unexpected losses that cause damage to home, you need to take steps to mitigate (keep things from getting worse) the damage. After that, it’s important to figure out how much it is will cost to repair the damage or to replace the damaged property.  Essentially, this means figuring out how much it will cost to “make you whole.” Let’s do some math:

Covered Loss & Damage < Deductible = No claim can be submitted (Homeowner pays)

Covered Loss & Damage > Deductible =  Claim can be submitted (Insurance Carrier pays)

But what if your damage costs are only slightly above your deductible? This is where your trusted advisor becomes vitally important. If you have a covered loss that will only cost $100 dollars more than your deductible, it’s easy to see that submitting the claim to your insurance carrier might not make sense. If you have a covered loss that is a few thousand dollars more than your deductible, you will obviously want to consider submitting that claim to your insurance carrier. Those claims that fall somewhere between that are more difficult to make a decision on.

Homeowners insurance should be used for catastrophic events – the best way to determine is catastrophic is to speak to your trusted insurance professional. Have a conversation about it, rather than assuming the worst! But have this conversation up front to avoid a shock later on. For example, some carriers have shifted their Property Deductibles to a percentage of a home’s replacement cost (This could mean you pay 2%, 3%, or 4% of your home’s insured value – yikes!) If you have a home valued at $200,000 and the policy requires a 2% deductible, you must pay the first $4,000 of any covered loss. That’s not the type of surprise anyone likes.