Ignorance is not bliss when filing an insurance claim.
When it comes to filing homeowners insurance claims, what you don’t know might truly hurt you. Did you know that filing more than one insurance claim within a five-year period could result in losing your insurance? Since lenders require proof of insurance while you hold a mortgage, keeping your coverage proves vital..
Each insurance company sets guidelines on the maximum number of claims before opting not to renew, but often two is the magic number, meaning that insurers decline to renew after you exceed that number of claims in a period of time, industry experts say.
“Generally, when we see a second claim filed on a customer on a three-year to five-year period, they’re probably going to get non-renewed,” says Joseph Wagner, an independent insurance agent with Wagner Insurance Group of Olmsted Falls, Ohio. “That’s pretty much across the board.”
Factors that Affect Your Homeowners Insurance
When can my insurance company refuse to renew my policy?
Some states have laws dictating when insurance companies can opt to forgo renewal because of the number of claims filed. In Texas, for example, an insurance company can opt not to renew your policy if you file three non-weather-related claims within three years. However, if a company fails to notify you of this possibility after the second claim, coverage can’t be denied upon the filing of a third claim.
California requires insurance companies to give homeowners at least one opportunity to renew their policy in the event of a total loss if a disaster, not negligence, destroyed the property.
Generally, your insurance company can cancel a new policy within 60 days for any reason, according to the National Association of Insurance Commissioners. After that, the policy can be canceled only for nonpayment, a significant change in risk, or if you used fraud to obtain the policy.
However, you can cancel a policy at any time. A non-renewal means you or the insurance company declined to renew the policy upon expiration of the old policy.
What can I do if I lose my coverage?
For those who lose their coverage and can’t get insurance in the private market, states offer public programs, often known as Fair Access to Insurance Requirements (FAIR) plans, as insurance of last resort.
“Generally speaking, the coverage you’re going to get in a FAIR plan or insurer of last resort is going to be more limited, more bare bones than you would buy [on the private market],” says Amy Bach, executive director of United Policyholders, a nonprofit advocacy group for consumers’ insurance rights. “It may actually cost more.”
Before choosing to go with an insurer of last resort, Bach suggests calling several insurance companies to try to get coverage. To meet high demand for insurance of last resort, some states offer a plan of last resort in addition to FAIR, like Florida’s Citizens Property Insurance plan, which was the largest residential property insurer in 2012, according to spokesman Michael Peltier.
When do I file a claim?
Below are five tips to help you avoid a claims quandary and get the most from your insurance:
Talk to an agent: Sure, you can buy insurance online and get an affordable rate, but do you know if you’re getting the best coverage? An insurance agent can help you find the best coverage for your budget, says independent agent Mark Wenclewicz of Wenclewicz Insurance of Indianapolis. “We represent many different companies,” Wenclewicz says. “When we quote somebody, we’re quoting all those companies.” An agent also can explain how the policies work when you need to file a claim.
Understand your policy: Avoid the shock of finding out your policy doesn’t cover flooding after Mother Nature turns your basement into an indoor pool. An agent can walk you through the details of your policy in about 10-15 minutes so you know what’s covered and what isn’t, Wenclewicz says. Your policy also outlines the deductible amount. If repairing the damage to your home costs less than the deductible, it may not be worth it to file a claim..
Mitigate damage: Do what you can to stop damage. “You have the duty to prevent further damage,” Wenclewicz says. “You don’t want to be negligent. Say a tree falls on your roof, we want to get a tarp over that so if it rains, rainwater isn’t getting in the house.”
Call your agent before filing a claim: In the event of damage to your home, call your agent — not the claims center — first. Your agent can help determine if you need to file a claim. “If a person calls me and they say, ‘Joe, my roof is leaking.’ I’m not going to suggest they file a claim [immediately]. I’m going to suggest that they have someone come out and look and get an estimate,” Wagner says. “If it’s a significant claim for major damage, we want them to file the claim.”
Pay small damages claims: It may put a dent in your wallet, but you’re better off paying out-of-pocket for damages that are less than or just over your deductible. “We’re telling people: ‘Don’t file small claims,'” Bach says. “Each insurance company has its own rules for what kind of penalty they will levy on you for filing a claim.”
The Comprehensive Loss Underwriting Exchange (CLUE) history database tracks claims, allowing all insurance companies to check a homeowner’s history — even those with coverage from a different company.
“Most companies won’t even quote you if you have two or more claims in the last three years,” Wenclewicz says. “Most companies go back three years; some go back five. When you have one [claim], it’s like OK, you don’t want to turn in anything small.”
Editor's note: This is an updated version of an article originally posted on January 16, 2014.