Don’t file an insurance claim until you read this

Do NOT file and insurance claim until you read this...Our daughter Jaime called to tell us, through angry tears, that she learned from her mortgage company that her homeowner’s insurance policy had been cancelled.

Evidently, when the mortgage holder tried to make a payment from Jaime’s escrow account, the insurance company couldn’t accept it because Jaime was no longer insured. After cooling down and gaining her composure, she contacted her insurance company who affirmed the cancellation. The reason? She had filed three claims over a nine-year period.

“Why,” she asked, “didn’t anyone caution me that I was about to be dropped? And, pray tell, why didn’t you tell me when you dropped me?”

“We sent you a cancellation letter before the policy was dropped. It was returned to us as ‘non-deliverable,’” the agent stated coolly. “That is all we are required to do. If you didn’t get it, it is not our fault.” (Note from Joe: This makes no sense because Jaime still lives in the same “insured” house she had been paying premiums on all those years.)

With her mortgage holder breathing down her neck, Jaime contacted several insurance firms before finding one who agreed to a policy which cost twice as much as her previous one. She feels betrayed by her former company and unwilling to trust her new one.

So, what can we learn from this nightmare? Should you even file an insurance claim?

“Of course!” is the logical answer. “Why should I pay for insurance if I am not going to use it?” Yes, that is good logic, but who says insurance companies are logical? The stark truth is that you may be better off paying the claim yourself.

Here are some guidelines . . . .

When to File the Insurance Claim

1. File if it’s a Big One

When the size of the claim is small enough that you can handle it out of pocket, you probably should. However, when the big ones come, go ahead and file. This is why you bought the insurance. Tricky challenge: Define what “big” is for you.

2. File if You Have a First-Time Forgiveness Policy

Some policies offer a one-time freebie, meaning that you will not be penalized by filing that claim. In many cases, this provision only applies if you have been accident-free for a number of years.

3. File if You Haven’t Had Any Recent Claims

This is similar to the first-time forgiveness policy, but it is a good idea to communicate with your agent before filing the claim. At this point, you need to be coy about the incident. Why? Because some agents are required to note in your file that you have had an incident even if you don’t file a claim. Ask hypothetically, as in “if I were to have an accident, would filing a claim raise my future premiums?”

4. File if Someone Was Injured

If there is a chance that someone was injured in the accident, go ahead and file in order to protect yourself from a possible injury lawsuit.

When Not to File the Insurance Claim

1. Don’t File If the Claim Amount is Close to Your Deductible Amount

There is no need to get flagged by your insurance carrier if you are going to be paying most or all of your loss out-of-pocket anyway.

2. Don’t File if You Have Had Moving Violations

Some auto insurers consider your driving violations as good cause to raise your premiums or drop you. Adding a claim to these violations will likely kick off some punitive action.

3. Don’t File if You Have Had Other Claims

Filing several claims in a short time frame is asking for trouble. You will certainly get your premiums bumped up and you may get canceled (although, as previously noted, my daughter’s three claims were spread over a long period).

Helpful Insurance Tips

1. Learn Ahead of Time

Talk to your agent now, while there are no claims pending, to learn the company’s policy on raising premiums and canceling policies. Ask your agent to explain the surcharge schedule, which shows how much rates will increase after a claim. The agent is more likely to be forthcoming when no money is at stake.

Am I saying that agents may misrepresent those policies when there is money on the line? Yes.

2. Consider Raising Your Deductibles

The larger deductible you can afford, the lower your premiums will be and the less likelihood you will file a “minor” claim, triggering a rate hike or cancellation.

Hint: Make sure you have a big enough emergency fund to cover those deductibles. Consider $1,000 on auto and $2,500 on homeowners.

3. Get a C.L.U.E.

What is C.L.U.E.? Comprehensive Loss Underwriting Exchange. This quote from their website explains their services:

The C.L.U.E. Personal Property report provides a seven year history of losses associated with an individual and his/her personal property. The following data will be identified for each loss: date of loss, loss type, and amount paid along with general information such as policy number, claim number and insurance company name.

The C.L.U.E. Auto report provides a seven year history of automobile insurance losses associated with an individual. The following data will be identified for each loss: date of loss, loss type, and amount paid along with general information such as policy number, claim number and insurance company name.

Simply put, you have free access to the same accident and claim history your insurance carrier has. Knowledge is power, so get that knowledge.

Final Thoughts

Insurance is aptly defined as a transferring of risk. Because most of us don’t have the bankroll to finance our own risks, we need insurance. But the best plan for the long run is to maintain a big enough emergency fund to allow you to raise those deductibles, keep premiums down, and file only big claims.

Have you ever had your insurance policy canceled? Were you properly notified ahead of time? What kind of hassle did you incur getting new insurance? Did you end up changing insurance companies? Leave a comment!












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13 Comments
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  1. Would be interested to know which insurance company it was. Most people I know have only State Farm or All-State and I haven’t heard of a single bad experience (we have State Farm for 15 years and they have been great the entire time through any claims, big and small, we have filed).

    The only way to get these companies to change is if their bad policies cause them to lose customers.

  2. Devendra Joshi

    Hi
    I am regularly reading all your e mail contains, I would like to add one thing,Last year my refridgerator’s compressor burnt out and i ask my insurance what can be done, it was just inquiry and my insurance company filled as a claim and my insurance premim gone high without reason.This is a technique to rais the premium.

    • As a former insurance agent (nearly 20 years), I can tell you that you should not have had a claim charged against you or any change to your policy premium as a result of your inquiry, IF, this was a routine maintenance problem (which is not covered under the policy provisions). However, if you ask for an adjuster to come look at it or if you suggested lightning may have caused the failure, those two things could result in a claim being filed even though no money was paid out. All companies are not the same!! That is why you should always deal with a reputable company and agent, locally if possible.

  3. Your daughter should file a complaint with the State Insurance Commissioner and ask them to investigate her experience with her old insurance company. Please have her tell the entire story beginning to end, including that she has lived in the same house for years and had received mail from them regularly. Hope this helps.

  4. In 1991 Geico Insurance cancelled my auto policy after I was involved in an auto accident. No fault of my own, a loaded concrete truck ran a red light and hit me, knocking me into oncoming traffic where I was hit by 5 other vehicles. I happened to be the second car in the line of traffic flow (with the green light) and happened to see the truck fast approaching the intersection and did not proceed into the intersection knowing he was going to take out that intersection. As I was praying and watching the intersection, he veered directions and hit my car, Unfortunately, the company was self insured and refused to accept any responsibility and with my car being propelled into the intersection and I did have insurance, the cars that hit me filed on my insurance for their own claims. Never knew if Geico even paid anything on anyone’s claims, as I was cancelled soon after the accident and they did not pay anything except pay my car off. Needless to say I would never recommend Geico and the frequent mailers are promptly shredded!

  5. Laura K

    Well, I wish I’d seen this article two weeks ago! We just had a lightning strike that caused a pine tree in our yard to explode, and hit a sprinkler head as well, allowing the energy to travel up the sprinkler wire into the basement, where it caused the sprinkler system controller to blow off the wall and across the room. It was wild!

    We have a $1,000 deductible, so I wasn’t sure we’d have a claim, but Liberty Mutual has some strange calculation they use to determine the value of the tree we lost, and they valued that stupid pine tree at over $3,000. However, there was a limit of $500 on the policy for that kind of loss, but the excess loss was applied to our deductible. So, combine the $500 with the cost to repair the sprinkler system, and we’ll be getting a check for about $1200.

    Now, to complicate matters, I’m in the middle of switching carriers to get a policy that is “guaranteed replacement cost”, which isn’t offered by Liberty Mutual. So before we put in the claim, I called the new agent and told her about it and asked if that was going to affect my premium, but she said that Merrimack Mutual, the new carrier, told her that claims under $5,000 don’t affect your premium. Whew! So I’m free to collect my check and then cancel my policy. : )

  6. Ah, another insurance horror story. I’ve lost almost all trust with insurance companies from the stories I’ve heard.

  7. I don’t know if it’s the same for car insurance, but for home insurance, in the state of AR, the company can drop you for filing 2 claims within 3 years I believe it is. So they can drop you for using it basically. This happened to us! It’s crazy. And they were legit claims.

  8. Ditto on filing a complaint against the company. Ask the agent for proof the letter was returned…the envelope containing the letter. Does the law say they have to *prove* the letter wasn’t delivered or is it say so only?

  9. That sucks about what happened with your daughter and her insurance company dropping her after 3 claims in 9 years. You mentioned we shouldn’t file claims close together. How close is too close. I mean, if seems as if 3 claims in 9 years would be acceptable but what do I know?

  10. We were injured by a negligent person insured by State Farm. They paid property damage immediately, but put us through hell to get our medical bills paid. If you want coverage to help you do the right thing if you accidentally injure someone, State Farm is NOT your company.

    Another tip is NEVER pay your insurance bill even one day late, or they will use that as an excuse to cancel your policy as soon as you make a claim.

  11. Michelle

    We did not file a claim for loss and did not alert our insurer. But we did file a police report. The police did nothing. Our insurance premiums increased drastically for two years nonetheless. It’s a racket

  12. When we lived in town, our car was struck hit-and-run 3 times at night in 3 years. When we filed our 3rd claim, the agent(a believer) suggested that we cancel our policy right after we get our check, siting that we would likely be dropped for excessive claims.
    Some years later, my wife was involved in an accident (her fault). We repaired the other car’s repairs, plus ours through our insurance. Our rates shot straight up, so we went to another insurance company and paid much less.
    There is fierce competition in the car insurance industry- use it to your own favor!

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